Talking depreciation

We’re here to take the taboo out of tax and guide you in understanding what some people believe to be a complex topic, depreciation. As we approach the end of June, it’s time to take handle on your entitlements as a property investor to ensure that you have claimed all the depreciation you can for your property portfolio.

We thought we would answer some of the obvious questions that might be on your mind.

What is depreciation?

Depreciation is the accounting method used for calculating the loss in value of a building or improvement over time. The Australian Taxation Office (ATO) allows property owners to claim this depreciation as a tax deduction. Depreciation can be claimed by any property owner who obtains income from their property.

Depreciation can apply to:

•Residential buildings,
•strata buildings,
•commercial buildings,
•and any upgrades, renovations and improvements to these buildings.

What’s considered a depreciating asset?

The ATO defines a depreciating asset as one that has a limited effective life and can reasonably be expected to decline in value over the time it's used. Land, trading stock and some intangible assets are not depreciating assets. Some examples are:

•Structural improvements such as sealed driveways, fences and retaining walls,
•smaller items such as door handles and garden bins,
•white goods and electrical items,

A depreciation schedule is prepared by a qualified surveyor and lasts for the life of the property (40 years). Once the schedule is in place it can be referred to by accountants in the preparation of returns for that property. Owners of apartments are able to claim depreciation on a portion of the strata common areas.

Kristian Jeromson from Asset Reports noted that even owners who had owned an investment property for many years without a depreciation schedule can still benefit, as a schedule can be used to amend up to two previous tax returns to recoup missing deductions.

There have been some accommodations in relation to depreciation announced by the government in response to COVID-19 which are directed more towards ‘business’ Plant and Equipment and Assets. As these would be written off in the 2019/20 Financial Year, these would not be calculated in your tax depreciation schedule, and would be claimed direct. Please refer to the information on enhancing the instant asset write-off on the ATO website.

Over time we have found that sellers of investment properties have included depreciation schedules with their property so that the new owner is equipped with all the information they need to consider this as part of their tax planning and investment strategy. If you need information on any expenses you have incurred in relation to your property, please get in touch with your property manager. If you are looking for an investment property to suit your investment strategy, please get in touch with one of our team who will be happy to assist.

So, if you haven’t previously taken a considered approach to the depreciation for your property investment portfolio, this is your year. If you’re looking for advice, we’d be happy to refer you to our depreciation partner, Asset Reports.

The above advice is general in nature and is not intended to constitute professional accounting, financial planning or investment advice. Please speak to your professional advisors to obtain advice specific to your circumstances.

Visit the ATO website for more information on depreciation and capital allowances

To learn more about Asset Reports visit

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