Unlock Hidden Savings: The Power of Tax Depreciation Schedules for Property Investors
With the EOFY just around the corner, now is the perfect time for a deep dive into your tax depreciation schedule.
A surprising 80% of property investors aren't taking advantage of depreciation, skipping important deductions. This oversight could lead to missing out on as much as $20,000 in tax benefits every year.
What is a Tax Depreciation Schedule?
A tax depreciation schedule is a detailed report that breaks down the depreciation-related tax deductions that you can claim on your investment property.
Depreciation refers to the reduction in the value of your property over time due to wear and tear.
The Australian Taxation Office (ATO) allows landlords to claim this depreciation as a tax deduction. There are two types of depreciation that can be claimed:
1. Capital Works Deductions
Capital works deductions refer to the depreciation of the structure of the building itself. For residential buildings constructed after September 1987, the ATO allows investors to claim this type of depreciation over a period of 40 years.
It is also possible to claim depreciation on substantial renovations, including those carried out by previous owners, as long as the property was not "used" before it was sold.
2. Plant and Equipment
Plant and equipment depreciation refers to the fixtures and fittings within the building, such as carpets, air conditioning units, light fittings, and kitchen appliances.
The ATO provides a list of depreciable assets and their respective depreciation rates. Regardless of the age of your property, you can claim tax allowances on these depreciable assets.
The Benefits of a Tax Depreciation Schedule
Getting a tax depreciation schedule offers several benefits for property investors:
Maximising Tax Deductions: A depreciation schedule allows you to maximise your tax deductions by accurately assessing and estimating the depreciation of your property. This, in turn, increases the return on your investment.
Potential Savings: Despite the fact that most property investors are entitled to depreciation deductions, only around 20% actually claim them. By getting a tax depreciation schedule, you can ensure that you are not missing out on potential savings of thousands of dollars each year.
Compliance with ATO Rules: The rules and regulations around which deductions can be claimed can be complex. A professionally prepared tax depreciation schedule ensures that your deductions are correctly assessed and estimated, complying with the ATO's requirements.
Why You Need a Tax Depreciation Schedule
While some property investors may believe that their accountant can prepare a depreciation schedule, it is important to note that a quantity surveyor needs to prepare the report before the accountant can work with it.
Quantity surveyors are professionals recognized by the ATO as qualified to estimate construction costs and asset values. They have the expertise to accurately assess and calculate the depreciation allowances for your investment property.
How to Obtain a Tax Depreciation Schedule
While an accountant plays a crucial role in managing your finances, only a quantity surveyor can prepare the detailed depreciation schedule required by the ATO.
These professionals are uniquely qualified to estimate construction costs and asset values, ensuring your depreciation claims are accurately calculated.
While budget self-assessed reports may be cheaper, they may not be as thorough or accurate, potentially resulting in missed deductions. It is advisable to choose a reputable quantity surveyor who can provide a comprehensive and accurate report. Keep in mind, the fee for a tax depreciation schedule is a one-time expense, yet the benefits recur annually without the need for a new schedule each tax year. Additionally, this fee is tax-deductible, offering an immediate financial benefit and making it a cost-effective investment for your portfolio.
For more insights or tailored advice on enhancing your property investment strategy, get in touch with our team today.
