07 February

Cosmetic, substantial renovations and the depreciation landscape

Over the last two years, we have seen many Australians complete a cosmetic renovation at either their home or investment property. This is due, dare we say it, to the COVID-19 pandemic down time.

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What property investors may not be aware of, is the tax depreciation deduction available to them for completing these cosmetic improvements. If you are a property investor, and you aren’t claiming your tax depreciation deduction, you could very well be surprised by what is available to you!

 

What is a cosmetic renovation?

A cosmetic renovation is one option when renovating your investment property – without changing the premises size or structural integrity. A cosmetic renovation is not as expensive as a substantial structural renovation.

Examples of cosmetic renovation works include:

  • Painting the interior or exterior of a property;
  • Changing of the kitchen cupboard doors and handles;
  • Installing brand-new kitchen plant and equipment assets (known as Division 40) ie. rangehood, stove or oven.
  • Installing a new toilet seat!

Not only can a cosmetic renovation dramatically increase the overall value of your investment property, but it can also increase your tax depreciation deductions entitlements improving your cash flow. The following tax depreciation rules apply:

  • You can claim for brand-new plant and equipment assets ie rangehood, stove, as long as you are not living in the premises whilst you are installing;
  • If completing a renovation whilst living in the property, you can claim for the capital works on the property. This is known as Division 43 and you are entitled to claim for works you have completed as well as works completed by previous owners;
  • You can use the value of existing plant and equipment assets from previous owners to offset any Capital Gains Tax applicable when you sell your investment property.

What is a substantial renovation?

If doing more than cosmetic changes, then you could be completing a substantial renovation. These renovations are explained by the Australian Taxation Office as: Substantial renovations of a building are renovations in which all, or substantially all, of a building is removed or replaced. However, the renovations need not involve removal or replacement of foundations, external walls, interior supporting walls, floors, roof or staircases.

A substantial renovation can also increase the value of your investment property and can increase your tax depreciation deductions claim. The following tax depreciation rules apply:

  • You can claim for capital works that you have completed;
  • You can claim for qualifying capital works that previous owners have completed. 

How is the cosmetic renovation claimed if I cannot find my receipts?

As per the Australian Tax Office qualified quantity surveyors are qualified to estimate construction costs. When a property investor is unable to provide a receipt for either works that they have completed or for a plant and equipment asset, they are able to estimate the value of the capital works or asset.

Not all quantity surveyors specialise in depreciation. When you engage a quantity surveyor to assess your investment property make sure they are registered tax agents with the Tax Practitioner Board of Australia. Here at Capital Claims Tax Depreciation, we are registered tax agents.

What if I completed painting at my investment property, how can I claim depreciation for that?

If you have completed any type of capital works ie painting the interior and exterior at your investment property, and cannot provide a receipt, we are able to estimate that value. 

Case Studies

Below we take a look at two different cosmetic renovations. The first being for an apartment and the second for a house. Both of our clients already had existing Capital Claims Tax Depreciation Schedules in place.

 

  1. Our clients Rachel and Dominic completed a cosmetic refurbishment at their 2 bedroom apartment.  They hired a painter to paint the interior of the apartment, they added new flooring and replaced the kitchen cupboards.  Rachel and Dominic were already claiming $2,150 in depreciation for this financial year (using their existing depreciation schedule), and that has now increased a further $1,254 to $3,404. It has added an extra $4,504 in deductions over the next 5 years.
  2. Our client Chiara completed a cosmetic renovation at her 3 bedroom house.  She hired a painter to paint the interior and exterior of the house and shed.  She also installed brand new carpet, new lighting all throughout and new blinds. Chiara was already claiming $4,867 in depreciation for this financial year (using her existing depreciation schedule), and that has now increased a further $1,625 to $6,492. It has added an extra $4,925 in deductions over the next 5 years.

Whether you have completed a cosmetic renovation or a substantial renovation at your investment property, it’s important to capture all of your available tax depreciation deductions. This can help you with your cash flow.

To find out what you can claim, call one of our friendly experts on 1300 922 220. We would be more than happy to give you a free estimate of what is available to you in tax depreciation deductions. If you would prefer to liaise online, click here ‘Get a free estimate of deductions, simply fill in the details and we will get back to you as soon as possible.

 

free estimate of depreciation deductions

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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