If you have held your investment property for a number of years but didn't realise you could be claiming depreciation on it, you have effectively over-paid your taxes and you are entitled to claim back the over-payment from the ATO. How many years you can back-claim will depend on your previous tax lodgements, as well as your personal circumstances. Your accountant will be able to provide more detailed advice for your own situation, however some general guidelines are below.
The ATO states the following when it comes to amending tax returns for previous years:
"The law sets time limits for amending your tax assessment.
For individuals and small businesses the time limit is generally two years, and for other taxpayers four years, from the day after we give you the notice of assessment for the year in question (generally taken to be the date on the notice or, if we don't issue a notice, the date the relevant return was lodged).
For example, you're a sole trader and receive a notice of assessment dated 12 November 2017. Your two-year amendment period starts on 13 November 2017 (the day after the date on the notice) and ends two years later, on 12 November 2019, so you have until that day to lodge a request for an amendment to that assessment.
You can submit more than one amendment request within a period of review."
This means that generally individuals are able to amend up to 2 years previous tax returns. It is also our understanding that if you were behind on lodging your taxes last year and lodged a number of years at the same time, all of those years will be eligible for amendment as they were lodged within the last 2 years.
It is also our understanding that if you are the beneficiary of a trust, or the potential beneficiary of a trust, then the 4 year limit for amendments will apply.
All other entities, such as trusts, companies and self-managed super funds can amend tax returns lodged within the last 4 years as a standard.
Back-claiming for previous years requires that you submit a request for amendment to the ATO. The ATO does not charge a fee if you request an amendment and you don't have to send in another tax return unless they ask you to. You can request an amendment in a number of ways. We always recommend you consult with your accountant - they are the experts and can do this process with the most experience and least amount of effort. If you manage your own tax affairs however you can find specific details here on the relevant ATO website page.
Below we take a further look at two of our clients tax depreciation back-claims. 1. Christine who owns a residential investment property. 2. Malcolm who owns a commercial property.
1. A residential property quick case study...
Christine purchased a 2 year old investment property in 2017. Christine was not aware at the time that she could benefit from claiming depreciation. Christine had Capital Claims Tax Depreciation prepare a depreciation schedule for her in May 2020. A Capital Claims Tax Depreciation schedule begins from the time the investment property is available as an investment property, which in Christine's case was as soon as she purchased it in March 2017. Christine holds her investment property as an individual and would like to back-claim depreciation in previous years that she missed out.
Christine's total depreciation deductions for each financial year were as follows:
Based on the above example, Christine is able to request amendments for her 2018 and 2019 tax returns, as well as claim deductions in her 2020 tax return and subsequent years going forward. Total deductions claimable across the 3 years equals $25,070. Unfortunately, the $5,013 that would have been claimable for the 2017 financial year have been lost. On the upside, Capital Claims Tax Depreciation held off immediate write-off and low-cost and low-value pooling provisions to minimise the first year losses and improve results in subsequent years.
2. A commercial property quick case study...
Malcolm purchased a commercial office building in 2015. Malcolm was not aware at the time that he could benefit from claiming depreciation. Malcolm had Capital Claims Tax Depreciation prepare a depreciation schedule for him in June 2020. A Capital Claims Tax Depreciation schedule begins from the commercial property’s settlement date, which in Malcolm's case was February 2015. Malcolm holds his commercial property in a trust and would like to back-claim depreciation in previous years that he missed out.
Malcolm's total depreciation deductions for each financial year were as follows:
Malclom’s trust is able to request amendments for his 2016, 2017, 2018, and 2019 tax returns, as well as claim deductions in his 2020 tax return and subsequent years going forward. Total deductions claimable across the 5 years equals $195,167. Unfortunately, the $28,555 that would have been claimable for the 2015 financial year have been lost. On the upside, Capital Claims Tax Depreciation held off immediate write-off and low-cost and low-value pooling provisions to minimise the first year losses and improve results in subsequent years.
“The back-claims and future claims will help our clients with cash-flow especially at this critical economic time. Depreciation can total thousands and for some cases in the commercial sector hundreds-of-thousands. Whether you own a residential investment property or own/lease a commercial property and have only found out about tax depreciation, it is worth having a conversation with us to see what we are able to achieve for you! Better late than never…..” Mark Wilkins - Director, Capital Claims Tax Depreciation
It's not too late! Contact our friendly team to discuss your property and find out if you have depreciation deductions available that you are missing out on. We provide a personalised quote and estimates of deductions up-front so you can feel confident before proceeding. Get in touch today on 1300 922 220 or click here to request a quote online!
The amount you can claims against your property all depends on a number of key factors. Some of the factors to consider are the type of property you have, the age of the property, when you purchased the property and when you first started generating an income from it. With so many things to consider, it is always best to call a tax depreciation specialist and ask for an estimate of tax depreciation deductions for specific set of circumstances.
As an investor, it is most important that you use a qualified and registered tax depreciation specialist. You must also depreciate the assets using either the prime cost method or the diminishing method. Once a method is chosen; this method must continue to be used moving forward for the investment property.
While many people wait until the end of the tax year to order a depreciation schedule, this can in fact be done at any time. Your schedule will start from the day following settlement and as soon as the property is income producing. For instance, if you settle on the 27th of June 2021 and your tenant moves in on the 28th of June 2021, you can start claiming from that date.
Claiming depreciation can assist in reducing your taxable income. In the same way you claim for expenses such as real estate fees/bank fees/interest/repairs etc – you can claim against the wear and tear of the building and assets. For example; (excluding all other factors) if the taxable income is $40,000 per annum and the tax depreciation deduction is $5,000 then the investor will only pay tax on the new taxable income of $35,000.
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