Making Your Investment Work Harder for You: Understanding Tax Depreciation Schedules

The vast majority of strata investment property owners do not take advantage of tax depreciation schedules to reduce their taxable income.

A depreciation schedule is a report that outlines all available tax depreciation deductions for a residential investment property or commercial building. Most properties, new and old, have depreciation available.

Land doesn’t wear out, but buildings do.

Just like how you can claim expenses on property repairs or renovations, owners of investment strata properties can claim deductions on the inevitable annual wear-and-tear of their building or complex.

A depreciation schedule will project capital works deductions and plant and equipment depreciation for the life of the property. This can subsequently be claimed in your tax return each financial year to help you save thousands.

Tax depreciation schedule are reports prepared by qualified Quantity Surveyors that outline the depreciation allowances that you are entitled to. Claiming this depreciation on your annual tax return reduces your taxable income, which means you pay less tax each year.

All investment properties qualify for depreciation

The two types of allowances available to property investors:

  • Capital allowances for the building structure (Division 43)
  • Plant & Equipment allowances which covers carpets, blinds and appliances (Division 40)

If your investment property was built and/or renovated after September 15, 1987, capital allowances are available to investors.

For investment properties built prior to September 15, 1987, depreciation entitlements will be estimated after an inspection based on the renovations, extensions and improvements undertaken to the property.

A depreciation schedule includes the following components:

  • Detailed 40 year forecast illustrating all depreciable items
  • Both prime cost and diminishing value methods of depreciation to help you decide which method is best for you
  • The effective life and depreciation rate for all division 40 (plant and equipment) assets
  • Low value and small business entity pools and instant asset write-off
  • A glossary of terms to help you understand the terminology used throughout the schedule

As a lot owner in a body corporate am I entitled to claim depreciation on common areas?

Yes.  As an investor in a complex or apartment building, you also own a percentage of the Body Corporate or Common Areas.

Your Tax Depreciation Schedule will include depreciation of all Body Corporate or Common Areas for your complex, based on your percentage ownership of same.

As all strata title properties contain different assets and have unique ownership arrangements, it is vital that deductions get apportioned correctly.

Renovations on my apartment were completed by the previous owner. Can I still claim these?

Yes. Regardless whether or not the works were completed yourself or by a previous owner, you are entitled to the depreciation of these works.

Benefits of a depreciation schedule

  • Save money – reduce the amount of tax you pay for great savings
  • Lasts a lifetime – a one-off fee that is also tax deductible
  • Adjust old returns- use your tax depreciation schedule to adjust previous tax returns and claim back missed dollars.
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