No Property’s To Old For Your Clients To Depreciate
One common misconception investors have when purchasing an older property is they think they won’t benefit from depreciation.
While there are some restrictions outlined in tax legislation which the Australian Taxation Office (ATO) will enforce, it’s important for property professionals to inform their clients not to dismiss obtaining a depreciation schedule simply because the property being purchased was constructed some time ago.
Below are three reasons why depreciation is just as relevant for owners of an older property as it is for those who purchase brand new buildings to help property professionals to encourage their clients to seek expert advice.
- There’s two elements to a depreciation claim
One reason investors think they’re ineligible to claim depreciation for an older property is because the rules state that capital works deductions can only be claimed on residential buildings in which construction commenced after the 15th of September 1987. However, capital works deductions (which can be claimed for structural and fixed items) form only one component of a depreciation claim.
The second depreciable element of an investment property is the mechanical or removable fixtures and fittings (also known as plant and equipment assets). The construction commencement date has no impact on whether investors can claim depreciation for plant and equipment. For these assets, the ATO provides an individual effective life over which deductions can be claimed.
- Older properties have often been renovated
It’s rare for Agents to sell an investment property constructed prior to 1987 which hasn’t undergone some form of renovation since its original construction.
Any work completed within the legislated dates will entitle an investor to claim capital works deductions, even if the work was completed by a previous owner.
Often renovations are not obvious, for example new plumbing. If an investor wants peace of mind, a Quantity Surveyor can assess the situation and provide a depreciation estimate before they order a depreciation schedule.
- Owners of properties built before 1987 claim $4,899 on average in the first year
Perhaps the easiest way for property professionals to encourage their clients to organise a depreciation schedule is pointing out the financial benefits associated.
Data from our schedules prepared during the 2015-2016 financial year suggests that owners of properties constructed prior to 1987 claimed an average of $4,899 in depreciation deductions in the first financial year alone.
At the end of the day, cash flow is vital for investors. By encouraging property investors to request a depreciation schedule, this could mean more room in their budget to enable them to afford a property and for you to secure a potential sale.
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.