Scott Brunsdon, Depreciator
When you consider the fact that depreciation can be a huge deduction for a property investor, it is odd that many people fail to claim it.
Buildings, and the Assets attached to them, suffer wear and tear (especially when tenants are involved). The ATO allows people to write-off these buildings and the assets over time. It’s really not much different from a business depreciating its assets.
So why do some people not claim depreciation?
There is a misconception that only new properties can be depreciated. (This is sometimes a myth enthusiastically supported by people who flog new property.) The fact is there is depreciation to claim in ALL properties. Yes, newer ones have more, but it’s always worth a phone call about older properties.
Buildings have a depreciation rate of either 2.5% or 4% depending on what they are used for and when they were built. When we say ‘buildings’, we mean walls, roofs, fencing, plumbing and wiring, all the things that will last a long time.
Then there are the assets. This is where the opportunity is to claim things quickly and this is something that people often overlook. In residential properties, assets with an opening value of less than $300 can be written-off immediately. Assets valued between $300 and $1,000 can go into a Low Value Pool (LVP). The LVP balance depreciates at 18.75% in the first part year, and then 37.5% of the diminishing total every year after that. Assets over $1,000 depreciate at various rates and when their value falls below $1,000 they can also go into the LVP.
It sounds more complicated than it is and that may be the reason why some accountants opt to claim everything at 2.5%. This means clients can miss out on half their depreciation claim and have to pay thousands of dollars extra in tax each year.
Another reason people don’t claim depreciation is that it is a ‘non-cash deduction’. With all other property deductions, investors pay out money during the year and then try to claw some back when they do their tax return. The common property related tax deductions are bank interest, council rates, water rates, maintenance and management fees. Investors know exactly what they spend on these every year.
They don’t know what they can claim in depreciation, though. When they bought the property, they locked in their depreciation claim and every year they just take that deduction off the table.
A Depreciation Schedule prepared by a specialist surveying firm sets out how much depreciation can be claimed on a property every year. It is a one-off, tax deductible expense that runs for years and years – a gift that keeps on giving.
Depreciator – a specialist provider
Earlier this year, Class launched an integrated depreciation schedule solution. Now, depreciation schedules can be ordered through Class and will be returned as a CSV file that can be uploaded in seconds, reducing data entry time.
You can find more information on Depreciator and depreciation at www.depreciator.com.au.