A study conducted by Australia’s leading tax depreciation specialist, BMT Tax Depreciation has identified an important statistic: 66% of tax depreciation schedules completed in the last three years have undergone a renovation or an addition by the owner.
A study conducted by Australia’s leading tax depreciation specialist, BMT Tax Depreciation has identified an important statistic: 66% of tax depreciation schedules completed in the last three years have undergone a renovation or an addition by the owner. With over 700,000 schedules under their belt this is an important discovery that all property owners should be aware of.
Why is this important?
This statistic shows us that two thirds of properties will contain valuable tax deductions that can be identifiable by a trained eye, which can result in thousands of extra dollars back at tax time.
These deductions, in the form of tax depreciation, are not only for undergoing a full house renovation but can also be available for smaller plant and equipment items, such as installing a new air conditioning unit.
What does this mean for depreciation claims?
Depreciation is the natural wear and tear of property and assets over time. The Australian Taxation Office (ATO) allows owners of income producing properties to claim this depreciation as a tax deduction.
These deductions can be claimed under two categories. The first is capital works (division 43) which is the building structure, which includes things such as windows, bathtubs, and swimming pools. And the second is plant and equipment works (division 40) which refers to the easily removable assets from the property such as security systems, light fittings, and hot water systems.
A tax depreciation schedule is essential to claim maximised and compliant depreciation deductions. The depreciation schedule outlines every depreciation deduction available from the property for up to forty years.
What does this do to the depreciation claim?
An eligible improvement such as a renovation allows the property owner to claim extra depreciation deductions on the additional works completed.
There are a couple of things to know before adding improvements or renovating.
Firstly, any recent renovation you have completed won’t be impacted by depreciation legislation changes introduced in 2017. This means the owner can claim any plant and equipment deductions on eligible assets within the renovation, even if the property was purchased second-hand after the legislative cut-off date of 9 May 2017. Meanwhile, any structural improvement, such as a door and door frame, can be claimed for the next forty years with capital works deductions.
Secondly, and most importantly is any renovations or improvements should always be reflected in the property’s depreciation schedule. This ensures no deduction falls through the cracks and isn’t claimed for both existing and added assets.
If property owners already have an active depreciation schedule, they don’t need to get a new one, they can simply update and amend their original one. If they are yet to obtain a schedule for their property, they can contact a specialist quantity surveyor, such as BMT, to organise a free estimate of likely deductions available and a quote.
Renovations and improvements are a great way to elevate investment properties and attract quality tenants, but it’s crucial to update your depreciation schedule. If not, you may be missing out on valuable deductions.
BMT Tax Depreciation identify any renovation or addition performed, no matter how big or small, through conducting a physical site inspection. Without a site inspection, it can be hard to accurately breakdown the costs to maximise the depreciation available.
If you would like to learn more about updating or ordering a depreciation schedule, contact BMT 1300 728 726 or Request a Quote.
The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.
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