Depreciation of holiday rentals is a commonly missed tax deduction for the owners of these properties. We are often surprised by how many investors don't claim for depreciation of their holiday rental, despite the significant tax advantages that may be available.
The tax deductions available will vary for owners, depending on when they purchased their property, and whether it was purchased brand new or as an established property.
The deductions available fall under Division 43 (structural/building) and Division 40 (plant and equipment/furniture) inclusions.
Division 43 deductions can be claimed regardless of whether you purchased your property brand new or established, so long as the building and the works that you are claiming for are less than 40 years old.
Division 40 deductions can be claimed for any plant and equipment items (including furniture, linen, crockery and cutlery, curtains, blinds, carpet, light shades etc) that have been purchased as brand new by the owner.
The best way to maximise your deductions and remain ATO compliant is by having a Capital Allowance and Tax Depreciation Schedule prepared by Capital Claims Tax Depreciation!
Our clients Rachel and Steve claimed over $73,000 in tax deductions in the first full financial year for their 3 newly built, beach holiday units, that were purchased fully furnished with brand new furniture.
The beach units are located in Forster, a beautiful beach location on the east coast of NSW.
The holiday units were built in May 2018. Each unit has 3-4 bedrooms, a single bathroom, 2 car parks, a deck, BBQ facilities and came fully furnished with brand new furniture.
Rachel was surprised to learn hat not only could they claim for capital allowances on their building, but that they would also claim depreciation on the furniture and inclusions of all 3 units - a combined assets valuation of just over $90,000.
Below is what Rachel and Steven were entitled to claim in tax depreciation deductions (presuming all 3 units were available to rent 100% of the year):
Again, presuming the units were available to be rented out 100% of the year, Rachel and Steve were able to reduce their taxable income by $73,608 in the first full financial year, $291,160 in the first five full financial years. Over the full depreciable life of the properties (40 years) tax deductions totalled $1.4 million.
If the property is only available to rent 70% of the year (30% of the year used by the owners and family), then Rachel and Steve would claim 70% of the full deductions reported for that year.
The one-off cost for their depreciation schedule (included all 3 properties) was less than $1,800.
For a free estimate of deductions you may be entitled to, we recommend you speak to our team on 1300 922 220 or email Alex our Senior Tax Depreciation Specialist at email@example.com.
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