Finance

Tax depreciation schedule

One of the most underestimated tools available for investors, especially those of new properties, is a tax depreciation schedule. It is also one of the easiest ways for an investor to make the most of the money they invest in property and to make the most of concessions available to investors within the tax system. Here are the fundamentals of a tax depreciation schedule you need to know.

What is a tax depreciation schedule?

There is one main date to remember when it comes to a tax depreciation schedule: the 15th September 1987.

There are also two main ‘areas’ in which you can claim tax back through a tax depreciation schedule. That is a capital works deduction (immovable objects ie. doors, roofs, tiles, windows) and plant and equipment (movable fixtures, such as heating systems, curtains, carpets etc.)

If your property was built before 15th September 1985, a tax depreciation schedule is still useful, but only applies to plant and equipment and can still save you significant money.

If your property was built after this date, then you are also eligible to claim 2.5% on capital works deductions for 40 years. Say you have invested $500,000 into a property built after 1985. You would be eligible to make a tax claim of $12,500 each year. Couple this with deductions made to plant and equipment and you start to see the sense in taking the time to get yourself a tax depreciation schedule.

How do you organise a tax depreciation schedule?

Thankfully, this does not require a huge amount of work on your part. But not just anyone can provide a tax depreciation schedule.

A quantity surveyor will break down your property into different categories for you in a depreciation schedule. Different items, such as an oven or carpets, have different rates of depreciation as set out through ATO legislation. As such, it is necessary to set these differences out and then couple these with building materials that relate to capital works deductions. If your building was constructed after 1985, then your accountant can not estimate the value of capital works deductions. Instead, a quantity surveyor must provide you with a tax depreciation schedule. This also goes for any renovations done before your purchase, as the ATO views a quantity surveyor as being qualified to make these estimations. If you renovate yourself, you are still eligible for deductions but you must declare these costs.

Remember that you only need to do this once, and it is best to have a tax depreciation schedule prepared immediately after the settlement of your investment property. This ensures that the quantity surveyor sees the condition of the property and its various fixtures as you have purchased them, allowing for the greatest amount of taxable depreciation. However, it worthwhile seeking the advice of your accountant as they may be able to claim depreciation backdated by up to 2 years.

Tip: what if you invest in an apartment linked to a strata title? You can include common items shared within the strata, such as swimming pools, lifts etc. in your tax depreciation schedule. Be sure to check this with the quantity surveyor.

For other money-saving tips with your investment, see how to make the tax system work for you here.