Too often accountants and other professionals still tell us that they don’t bother with depreciation for an investment property if the property is 20 years or older.
With half of the Division 43 allowances lost and the plant and equipment items being old, they don’t believe there will be enough value in a depreciation schedule.
Every day at Capital Claims Tax Depreciation we produce depreciation schedules for properties that are 20, 30, 40, 50 or even 100 years old, and still offer great value in depreciation deductions for their owners. Find out how below…
Our team has inspected tens of thousands of investment properties Australia-wide. Rarely do we come across an old property that has not been improved or added to over time. Often, the older the property, the more work that has been done. Because we inspect the properties we assess, as well as researching the property’s history via council records and historical sales data and images, we can create a time-line for an older property to determine what improvements and additions will qualify. Less obvious capital works may include the addition of garages (thought to be original), new roofs, additional rooms, re-piering, electrical re-wiring, re-plumbing and concrete driveways. More obvious additions include entertaining decks, kitchen and bathroom upgrades, retaining walls, swimming pools etc. As quantity surveyors we are qualified to estimate the construction dates and costs for those works. The depreciation for all of those works become claimable by the current owner.
Capital works completed 10 years ago still have 30 years worth of deductions claimable. A $60,000 capital improvement to home completed 10 years ago is still worth $1,500 each year for the current owner.
Division 40 Plant and Equipment items are revalued with new effective lives
Many investors, including experts still believe that they are unable to claim depreciation on the second hand assets if they are more than a few years old.
However, each time a property changes hands we have the ability to revalue all of the Plant and Equipment (Division 40) items and assign new effective lives based on our assessment of their future use. A 20 year old property, with original assets could still generate thousands of dollars in deductions when the assets are assigned values and new effective lives.
Where an investor has completed property improvements since purchase, not only will the new works be claimable going forward, but the residual of the old works can be written off at 100% in the year they are disposed of. If a 30 year old property was renovated, and that renovation required that original kitchen and bathroom be demolished, then the 10 years worth of Division 43 claims that were still left in that construction become claimable straight up, as well as the new capital works going forward. That can mean thousands of dollars in extra deductions for the investor in that financial year. Even better if the kitchen and bathroom had already been updated 10 years ago – that would mean 30 years worth of residual claims become deductible in that year.
The key to accessing all of these deductions is to ensure you have a quantity surveyor assess any investment property for a possibility of deductions. The property you disregard could be worth thousands of dollars in deductions. And if you are someone’s accountant, your clients are counting on you to know this. At Capital Claims Tax Depreciation, we will perform a FREE desktop assessment of any investment property and offer a reliable estimate of deductions over the first 5 years. Don’t leave money sitting on the table.
The house for this case study, in Cardiff NSW was built in 1975, and purchased by the current owners in September 2014.
Some large sheds had been added to the property in 1994 (verified with council records), and the bathroom had been renovated in the mid-90s (estimated by our quantity surveyor and verified by the previous owner), making those works qualifying works for Division 43.
In total the Plant and Equipment items for the property were valued at $18,000.
Some assets were disposed of in 2015, including a split system air-conditioner, 2 ceiling fans, light shades, a security system and a stove. Total value of the scrapped assets was $4,980. That is 100% deductible for the 2015 financial year.
The remaining assets acquired at purchase were depreciated over 3 years (depreciation accelerated from ATO rates due to their second hand nature and the intended life-cycle of the asset going forward).
Some assets were replaced, costed according to total installed cost and depreciated in accordance with the effective lives as prescribed by the ATO.
The Division 43 works, plus the valuation of the Division 40 items and the inclusion of scrapping resulted in depreciation claims for the owners of just under $11,000 in year 1, and just under $9,000 in year 2.
Our fee for this report, including the scrapping was just under $700.00 representing an excellent return for the investors who boosted their tax return by nearly $5,000 in year 1 alone.
If you own an investment property, the best way to ensure your depreciation deductions have been maximised is to use a depreciation schedule prepared by Capital Claims Tax Depreciation. For an estimate of deductions you may be entitled to, or to have your current depreciation schedule reviewed free of charge, please don't hesitate to get in touch.
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