Maximizing Depreciation Deductions for Investment Properties
Professionals such as quantity surveyors, accountants, and property investors rely on dedicated tools and resources to accurately calculate and optimize depreciation on new investment properties in Australia. Here’s an updated guide on the key tools and approaches used today.
Essential Depreciation Tools
1. Tax Depreciation Schedules
Created by qualified quantity surveyors, these schedules detail the claimable depreciation over a period of up to 40 years. They cover both capital works (Division 43) and plant and equipment (Division 40), offering the most precise pathway to reducing taxable income.
2. Online Depreciation Calculators
Available from firms such as BMT and Duo Tax, these calculators provide rough estimates that help with early planning. However, they do not substitute for an official professional schedule based on an in-depth property inspection.
3. ATO Guidelines
The Australian Taxation Office offers effective life schedules and depreciation rules that ensure professionals remain compliant. For example, second-hand plant and equipment is only depreciable if newly installed after 9 May 2017.
4. Accounting Software
Software platforms like Xero and Buildium can integrate with depreciation schedules. This integration streamlines tax preparation, reporting, and ensures consistency with ATO requirements.
5. Cost Segregation Studies
Advanced investors might use cost segregation studies to accelerate depreciation. By reclassifying certain assets (such as lighting or flooring) to shorter lifespan categories, these studies are particularly valuable for commercial properties or those that have undergone renovations.
6. Professional Collaboration
Quantity surveyors assess the depreciable elements of a property, accountants implement the deductions in tax returns, and property managers track rental income and related expenses. This collaboration is essential for consistency and accuracy.
Key Considerations
- New vs. Existing Properties: Newly constructed properties offer the most comprehensive deductions with 2.5% annual claims on capital works along with full-value plant and equipment claims.
- Renovations: Upgrades such as new walls or roof replacements can add to the deduction pool. The scrapping process also lets you write off the cost of outdated assets.
- Compliance: Keeping detailed records and ensuring deductions align with ATO guidelines are critical. Depreciation benefits can only be claimed on income-producing properties.
Example Calculation
Consider a property priced at $500,000 with $300,000 attributed to construction costs. This might lead to an annual depreciation of approximately $7,500 on capital works and between $5,000 and $10,000 for plant and equipment – resulting in significant yearly tax savings.
Recommendation
While online depreciation calculators are great for initial planning, it is always recommended to hire a professional quantity surveyor to prepare your official schedule. Coupled with reliable accounting software and expert tax advice, this approach can optimize your investment returns.
Additional Resources
For more information, visit the
ATO website or get in touch with
BMT Tax Depreciation or
Duo Tax.
