10 June

Duplex and dual occupancy builds are becoming increasingly popular with developers, investors and home builders.

There are a number of benefits to this type of investment property, including:

  • Higher rental return – increased rental income relative to the cost of the build;
  • Higher tax depreciation and capital allowance claimable.

Two homes, two income streams, two sets of tax deductions – sounds like a win-win! Below, we take a closer look at tax depreciation and duplex houses.

What is a duplex?

A duplex is also known as a dual occupancy home. Quite simply, it is two residences, under the same roof, with a wall dividing the two in the middle.

The pair of homes will be situated on one land title and be owned and sold together, or exist on separate titles and be individually owned and sold.

Duplexes come in all shapes and sizes. Single storey, double storey, mirror images or different layout.

One side of the duplex could have 2 bedrooms and two bathrooms, whilst the other side of the duplex could have 4 bedrooms and one bathroom. Both will have their own front door/access as well as garage/parking entitlements and outdoor space.

Duplex house and tax depreciation 

An owner or builder of a duplex property has several options available to them when they have finished building their duplex:

  • Sell both after construction and hopefully make a profit;
  • (Split the ownership if not already done) Sell one and live in the other;
  • (Split the ownership if not already done) Sell one and rent the other;
  • Rent one and live in the other;
  • Rent both.

When an owner decides to rent either one or both sides of a duplex – this is now considered an income producing property, and the owner is now a property investor. 

Like any income producing asset, there are several types of deductions you can make against the income generated. Besides claiming a tax deduction for the interest on your bank loan, real estate fees, repairs and maintenance etc, one of the biggest tax deductions claimable is capital allowance and tax depreciation.

What are capital allowance and tax depreciation?

The ATO allows property investors to claim for the ageing and wear and tear of their investment property assets – known as tax depreciation. The tax depreciation deduction falls under two key pieces of legislation. The first is Division 40 – Plant and Equipment Assets Deductions (tax depreciation) and the second is Division 43 – Capital Works Deductions (also called capital allowance). By claiming tax depreciation and capital allowance deductions, investors can reduce their income tax payable.

What are Plant and Equipment Assets Deductions?

Plant and Equipment assets are individual or grouped items such as the dishwasher, air-conditioner, carpet, blinds, stove. Each asset or asset group has its own effective life and depreciates at its own rate. The ATO allows property investors of residential investment properties to claim the tax depreciation deduction on any brand-new asset installed after May 2017.

When a duplex is newly constructed and both residences are income producing ‘rented out’, the advantage to the property investor is in claiming for the multiples of brand-new plant and equipment assets installed. For example, there are two dishwashers, two air-conditioners, 4 bathroom accessories etc. The deductions available for plant and equipment assets can total thousands under Division 40.

What are Capital Works Deductions?

Capital Works deductions are the available deduction for the wear and tear of the structure of a property. These elements include the roof, plasterboard, framing, hard landscaping, cabinetry etc. The ATO allows property investors to claim these capital works deductions at a fixed rate of 2.5%. Much the same as Division 40, these deductions particularly for the increased build cost of a duplex will total thousands in capital allowance deductions.

What are tax depreciation schedules?

In order to effectively claim deductions against the Division 40 and 43 components of the duplex, investors need to organise a Depreciation Schedule.

Depreciation schedules are the documents that calculate the depreciation claims for both Division 40 and Division 43, projecting forward and indicating the claims available for 40 years from settlement.

The schedule should be completed by a qualified quantity surveyor – like us here at Capital Claims Tax Depreciation, that is registered with the tax practitioner board. This will ensure a high-quality depreciation schedule that is also 100% tax deductible. Savvy duplex property investors will use a quality depreciation schedule to help with cash flow.

Below we have two case studies on what our clients claimed in depreciation deduction from their different duplex scenarios:

Helen and George constructed a brand-new single storey duplex with a mirror-image layout.  Each residence had 3 bedrooms, 1 bath, 1 living area, 1 car space and courtyard.  They constructed the duplex with high finishes as they wanted their property to withstand the test of time and receive a higher rental yield where possible. They live in one side of the duplex and rent the other to tenants.

Below are their available tax depreciation deductions for the duplex the are renting out:

Brand-new duplex - owner living in one, the other is an investment property:

Brand new duplex onside rental tax depreciation results

Brock and Cameron constructed a brand new two storey duplex again with a mirror-image layout.  4 bedrooms, 1 study, 2 bathrooms, 2 car space garage and courtyard. The duplex is in a metro location close to the beach with dual access. 

Constructed with medium finishes, they are renting both sides of the duplex out to tenants. 

 

Below are the duplexes combined depreciation deductions:

Brand-new duplex - both are investment properties:

Brand new duplex two rented tax depreciation results

Like any investment you need to make sure it is the right decision for your financial circumstances and goals. Duplexes are not for everyone with there can be limitations with sale, construction and council restrictions. Your financial or property adviser can help with deciding the right strategies for you.

If you have any questions about capital allowance or tax depreciation deductions, obtaining a quote or ordering one of our tax depreciation schedules, you can call us on 1300 922 220, email the team at info@capitalclaims.com.au or visit our website for blogs, eBooks and much more.

Duplex FAQS

Is a duplex considered a house?

Yes, a duplex can be considered a house. The property generally appears as one large dwelling/home, however it has two front doors as well as separate living areas and spaces.

Can a duplex have two owners?

Yes, a duplex can have two owners. If the property is on two titles (or strata’d), the property could be sold to two different people.

What is the difference between duplex and apartment?

A duplex is one structure that houses two homes (generally side by side). Most often these are one property title and treated as one property when transferring ownership.
An apartment, however, is usually multiple homes located in a building with shared facilities. Each apartment has ownership over the home and a predetermined portion of the common assets.

 

CTA quote for depreciation schedule 1024x300

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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