27 May

5 Common mistakes property investors make with depreciation

At Capital Claims, we aim to keep an open and honest communication going with our clients before, during and after we have completed their depreciation schedules. By doing so we often find out some interesting facts, myths and general thoughts around depreciation.

You can find out more details by visiting our ‘what is tax depreciation.’ But over the years, we have identified 5 common mistakes that property investors make in relation to property tax depreciation.

1. Not ordering a tax depreciation schedule at all

Even though tax depreciation is typically one of the largest deductions available on a property investment - some investors simply do not order a depreciation schedule when purchasing their property.

We have heard over the years that they didn’t know property tax depreciation existed, that they have mistakenly believed it isn’t worthwhile for their property, that they think their accountant can do it for them, or they might have just given it the good ol’ DIY treatment and attempted to claim the deductions themselves.

Not only are these thoughts and actions often producing non-compliant ATO results – they could be costing thousands in missed deductions!

2. Not claiming property tax depreciation for previous owners’ renovations

Many investors do not realise that they are able to claim for works and updates to a property that they didn’t even complete themselves!

You, as the current owner, are entitled to claim deductions for a previous owners’ renovations. A qualified quantity surveyor who specialises in tax depreciation, is recognised by the ATO as one of the few professions that are qualified to estimate construction dates and costs.

The quantity surveyor can estimate the cost for both the original building and any works completed over the years. From these estimates, they calculate the total tax depreciation deductions available to you.

Even when a property is over 50 or 60 years-old, we usually find that they have undergone multiple renovations and are not in their “original condition”. Our quantity surveyors will access the property itself or the available details and photos in order to work out when previous renovations were carried out in order to complete a comprehensive tax depreciation deduction schedule.

You do not want to miss out on claiming those valuable deductions that only a quantity surveyor is trained to look for. 

Repairs, Maintenance and Capital Improvements

3. Not using a split report for your property investment when appropriate

If you co-own your property investment with others, it is often much more beneficial to have quantity surveyor generate your tax depreciation schedule in a split format as you are able to make use of legislation details to claim your depreciation for Division 40 assets faster.

Using the Diminishing Value Method of Depreciation means that you are able to immediately write off assets under $300 as well as “pool” together assets that are of low value or low cost (under $1,000) in order to depreciate them faster.

This benefit is increased again when you split the interest that each owner has in those assets. For instance, a single $590 asset when split between two owners is an immediate write off at $295 in the first year. Across all your assets, those amounts can add up!

To find out more about split reports check out our article 'What is a split depreciation schedule?'

4. Not back claiming their available tax depreciation deductions

Unfortunately, it is still the case that when purchasing, some property investors do not realise that they can claim the tax depreciation deduction. However, when they do find out about tax depreciation, they are entitled to back claim some of those missed depreciation deductions.

The ATO will allow you to recoup or “claim back” an overpayment of your taxes. You can often amend up to 2 previous years claims or 4 previous years claims depending on how your property investment is structured. To maximise those missed deductions, you are best to order a tax depreciation schedule from a qualified quantity surveyor to work out what you are entitled to claim, then take to your account so they can submit your amendment to the ATO.

Just remember you will not receive 2 years-worth of depreciation deductions in one tax return, it is an amendment for that particular financial year, however, the benefits are often quite substantial. If you would like to know more about back claiming your depreciation deduction view our article 'Can I back-claim for depreciation on my rental?'

 5. Not claiming repairs and maintenance where appropriate

Investment property owners often confuse repairs and maintenance with capital improvements and the installation of new assets. Both are legitimate deductions however they are treated differently when recording your tax deductions each financial year.

When you complete repairs and maintenance at your investment property you are keeping it in the same condition as when it was purchased and repairing assets to their original standard. For example, you repair an oven, fix a leaking tap or replace one damaged panel of fencing. Repairs and maintenance costs can be immediately claimed as a tax deduction in the financial year it had occurred.

Capital improvements and new assets, however, will essentially improve the value of the property. For example, you replace and upgrade the oven to a new one, you install new tap wear throughout the bathroom or replace the fencing down the left-hand side of the property. These are all considered improvements and will need to be depreciated over their effective life.

When gathering your tax data each year, make sure your accountant is claiming these in the correct way, if you aren’t sure then ask them or touch base with us here at Capital Claims Tax Depreciation.

In summary

Savvy property investors and professionals highly recommend having a tax depreciation schedule. It’s important to engage a quality tax depreciation specialist to prepare your schedules as you don’t want to miss out on thousands for the sake of asking the right people the right questions.

If you would like to receive a quote for your property investment, click on image below to request your personalised quote or call us on 1300 922 220. We will complete a free quote plus a free estimate on what sort of deductions you can expect to achieve with your property investment.

CTA quote for depreciation schedule 1024x300

About Mark Wilkins

Mark is an expert quantity surveyor, business owner, public speaker and property developer. With 20+ years experience in the construction and quantity surveying industry Mark’s specialist expertise have been sought in consultant capacity by professional bodies such as the National Institute of Accountants and the National Tax and Accountants Association, and he has presented at various property and tax seminars and expos nationwide. Mark holds a Bachelor of Construction Management from the University of Newcastle, is an affiliate member of the Australian Institute of Quantity Surveyors and a Registered Tax Agent.

View all posts by Mark Wilkins

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