If the investment property you’ve bought, or are planning to buy, already has a few years on it, all is not lost. A qualified quantity surveyor will be able to tell you straight up what claims you can make for depreciation.
So, what is a tax depreciation schedule, why should you care about it and how do you go about getting one?
On the go? Here’s 30 seconds of key take outs:
- While a well researched property investment will increase in capital value over time, the physical components of the construction will decrease in value over time.
- In recognition of this, the Australian Taxation Office (ATO) will grant you tax benefits based on a formal depreciation schedule or report. The great news is there are decades of tax benefits to be gained!
- You need to invest in the one off services of a qualified quantity surveyor to produce the ATO compliant tax depreciation schedule. Then hold on to that document, you’ll be whipping it out at the end of each financial year to give to your accountant to reduce your tax bill.
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I know I bang on about buying new homes as opposed to established homes when you’re investing in property. There’s a reason I’m a new construction advocate and that’s because there is more to be gained in terms of reducing your tax bill.
Reducing your tax bill means improving your cash flow. Improving your cash flow means opening up more choices about how to live your life.
My recommendation would be to funnel some of the extra cash into a savings plan for your next investment. You may need more cash to fund a wedding, or a holiday!
With your property investment records in ship shape condition, your property depreciation report or schedule will be a key document to add to your tax minimisation folder, ready for your accountant.
What is a tax depreciation schedule and why should you care?
That brand new air-conditioner or window coverings operate and look fabulous in a brand new home. While your property may increase in capital value, the bits and pieces you’ve fitted the property out with will decrease in value over time. Owning the title to an income producing property, means you can legitimately claim tax benefits for the losses associated with wear and tear. These tax benefits will reduce your assessable income so you pay less tax to the Australian Taxation Office (ATO).
A Tax Depreciation Schedule or a Tax Depreciation Report is an ATO approved document for claiming tax benefits. It is a special document prepared by a qualified quantity surveyor that allows your accountant to maximise the cash return from your investment property.
The depreciation schedule is an assessment of the inside and outside of your investment property listing almost every visible physical component including window treatments, floor coverings, hot water systems, light fittings, and appliances such as dishwashers and air conditioners. It is a list of all the stuff that has cost you money and that will decline in value over time.
Quantity surveyors will use the current ATO property tax law as a basis for the assessment report. The cool thing is the depreciation report or schedule lasts for decades – between 20 to 40 years in most cases. Yet, you only have to have the scheduled prepared once.
How much does depreciation report cost?
At Capital Properties, our trusted residential property experts, licensed estate agents (including ex Defence mentors) and associated professionals, offer an end to end wealth building solution. So, as a Switched-on Property Investor with Capital Properties, we can help arrange a depreciation report for you. It is a part of our Pinnacle Support Program designed to support you for as long as you need us as you build your property investment portfolio.
Already have an investment property and didn’t know about the depreciation schedule?
If you already have an investment property, and didn’t know about the depreciation tax benefits I’m asking you to do two things.
One, find another accountant – one that is experienced in property investment – or better still, come and have a chat to us by calling 02 9222 9444. Second, arrange to have your tax returns amended. An accountant can go back two years and amend your tax returns so you can gain the tax benefits you’ve earned!
Get familiar with the ATO
To find out more about what tax benefits you may be entitled to claim, bookmark the ATO Residential Rental Properties page, as a favourite and check in from time to time.
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