Every year, thousands of investment properties are affected by events such as natural disasters (e.g. fire, flood, cyclone) and other unforeseen circumstances. In these situations, property investors often find themselves in the stressful situation of having to replace many assets and sometimes rebuild part or all of their properties.
While this process can be challenging for both owner and tenant, the property is ultimately improved by any work done and the new construction or assets all generate higher tax depreciation deductions.
Unfortunately, over the last several years due to our bushfires and floods here in Australia, we have had many conversations with our property investor clients asking how do they claim their capital works deductions and plant and equipment deductions in the event of damage.
Capital works deductions
Division 43, also known as the structure of the property, or the capital works. Depreciation is calculated from the full construction cost of the building structure which is upwards of hundreds of thousands of dollars, and has an effective life of 40 years.
Plant and equipment deductions
Division 40 (Plant and Equipment Assets) any new assets installed by the investor owner will be eligible for annual deductions. Examples include installation of air-conditioning, replacing hot water systems, replacement of kitchen appliances, new carpet, blinds etc.
The table below demonstrates the actions required to maximise and maintain the compliance of claiming tax deductions for depreciation of disaster-stricken properties.
Repaired: Minor works required to return the asset to its original condition, not an improvement upon the appearance or functionality of the asset in its original state.
Replaced: An asset or building works of the same function and specification have taken the place of the original asset.
Improved or Upgraded: The damaged asset/s and or building works have been replaced and improved beyond their original function and specifications.
Our clients Trish and Dave purchased a property in December 2016, we completed a tax depreciation schedule for them in 2017. Their property was damaged by fire in 2020. The whole property had to be demolished and a new property was constructed. And after speaking with us here at Capital Claims Tax Depreciation, Trish and Dave were able to have a new report prepared to help maximise their depreciation deductions moving forward for their property.
If a quantity surveyor has previously assessed the property in question, adjustments to the original tax depreciation schedule figures can be applied at a minimal cost. However, if the property has not been previously assessed, a full inspection and tax depreciation schedule is required from a quantity surveyor.
Timing is critical in this situation and it is best addressed as soon as practical. We recommend discussing individual scenarios with our experts to ensure any previous, current and future depreciation claims are maximised and maintained in accordance with ATO guidelines.
If your rental property has been affected by natural disaster and you would like to discuss the implications of this in terms of claiming your depreciation, don't hesitate to contact our team on 1300 922 220 or get in contact with Alex our Senior Tax Depreciation Specialist at firstname.lastname@example.org.
We service all of Australia and if your property has been damaged by a natural disaster, we would hope we could take a little less stress from you by helping you claim your available tax depreciation deductions.
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