Everything property investors need to know about Tax Depreciation Schedules — what they are, what you can claim, and how Abbcon Associates maximises your deductions.
A Tax Depreciation Schedule is an assessment of the decline in value of every component in your rental property. This annualised decline in value can be used to offset your taxable income — as if it were a cost against your property. In fact, it recognises that all parts of your property deteriorate and require replacement over time.
The schedule is prepared by a suitably qualified Quantity Surveyor registered with the Tax Practitioners Board — sometimes referred to by accountants as a "Quantity Surveyor Report". Your accountant then uses the schedule to maximise your tax return each year.
Deductions typically range from $8,000 to $22,000 per year, depending on property type, age and condition.
Covers the structural shell of the building — bricks and mortar, structure, fixed items, hard pavements, fencing and services. Calculated at 2.5% per year on a straight-line basis over 40 years, commencing from the date of construction.
Applies to residential properties built after 18 July 1985. Renovations and extensions are also claimable from the date of completion of those works.
Covers all removable and mechanical fixtures — floor coverings, window coverings, appliances, hot water systems, mechanical fans, heating, cooling, security and fire alarms, electric pumps, light fittings and hundreds of other items.
Depreciated at varying rates based on effective life (typically 5 to 20 years). No age restriction on installation date for these items.
Prime Cost gives you equal deductions each year for the effective life of the asset.
Diminishing Value gives you higher deductions in the earlier years — which is why the majority of investors choose this method. Significantly higher deductions in the first five years means less tax to pay during the period when you are most cash-poor after acquiring the property.
Circumstances where Prime Cost may suit you better include: you have lived in the property for 7 or more years before renting it out; you have been renting the property for 10+ years without claiming depreciation; or your personal financial circumstances favour spreading deductions evenly. Your accountant or tax adviser can confirm the best method for your situation.
Yes. Investors often think that because their rental property is older, there is nothing worthwhile to claim. This is not the case.
Division 43 allows deductions on capital works on residential properties from 18 July 1985 — meaning renovations, kitchen and bathroom upgrades, extensions, reroofing and restumping done since that date are all potentially claimable at 2.5% per year for 40 years.
Division 40 plant and equipment items have no age restriction on installation date and can be claimed regardless of the property's age. Contact us for an obligation-free assessment of your specific property.
Scrapping refers to the removal and disposal of depreciable assets from an investment property — for example, demolishing an existing kitchen before installing a new one.
When an investor disposes of a depreciable item, the residual value (the amount yet to be written off) can generally be claimed as a 100% deduction at the time of disposal. This can provide significant one-off deductions for investors undertaking renovations.
Important: There must be an intention to rent the property before renovating. The ATO has been clear that purchasing a property with the immediate intention to renovate does not qualify for scrapping deductions.
Capital Allowances (Division 40 ITAA 1997): Available for plant in both new and second-hand properties producing assessable income. Income Tax Ruling 2014/4 lists over 1,200 potentially depreciable assets including carpets, air conditioning and light fittings.
Capital Works Deductions (Division 43 ITAA 1997): Income-producing buildings where construction commenced after 17 July 1985 (i.e. from 18 July 1985 onward) are eligible for building allowances of 2.5% or 4% per annum, depending on construction commencement date.
Additional Claims: Renovations, extensions, repairs and write-offs of demolished works can provide additional deduction opportunities.
The Treasury Laws Amendment (Housing Tax Integrity) Bill 2017, passed in November 2017, restricted depreciation of plant and equipment (Division 40) for second-hand residential properties.
The good news: Properties where contracts were exchanged prior to 7:30pm on 9 May 2017 are unaffected — the prior legislation was grandfathered.
The new rules apply to plant and equipment assets in second-hand residential properties purchased after that date. However, Division 43 capital works deductions are entirely unaffected by these changes. New residential properties also remain fully claimable under both Division 40 and Division 43. Commercial and industrial properties are also unaffected.
Fees are structured to reflect building type, the number of reports required (multiple units within a complex may attract a discounted fee) and the depth of analysis required. All fees are tax deductible in the year of payment.
Abbcon Associates provides obligation-free quotes for your specific property. Request a free quote here.
No. Our Tax Depreciation Schedules include a summary of your tax claims for the initial 30 years. You simply provide the relevant year's figures to your accountant annually.
However, if the property's specifications change through refurbishment, extension or demolition, an additional report should be generated to capture the new deductions and achieve maximum allowable deductions going forward.
When a property is sold, there are potentially Capital Gains Tax (CGT) and balancing adjustment issues to address. CGT may be payable on the land and buildings. Plant is exempt from CGT, however a balancing adjustment must be calculated when selling plant — this ensures total depreciation deductions correspond to the actual loss to the taxpayer. Your accountant or tax adviser will manage this as part of the sale process.
The best time is as soon as possible after settlement. The sooner you have your schedule, the sooner your accountant can start claiming deductions. Depreciation can be claimed from the date the property first became available for rent.
It is possible to have a schedule prepared at any time during your ownership and claim prior-year deductions through an amended tax return (generally up to two years back). Contact us to discuss your situation.
Free, obligation-free quote. We'll tell you what to expect before you commit.
