Depreciation is another big part of the very ‘taxing time’ between financial years, but must be given due attention, lest you as a property investor miss out on some serious cash.
Unlike a car, a property generally appreciates in value over time, but of course materials and other physical, man-made parts of a property do not magically increase in quality and shininess!
Like a car, properties do suffer wear and tear and both the building and the appliances within become damaged, rundown and generally shoddier.
This is where depreciation comes in.
If you buy a property as an investment, you can claim depreciation of assets against your income when tax time rolls around.
The tax office refers to property depreciation as a ‘non-cash deduction’, which means you don’t have to pay cash first, in order to claim a deduction.
Rather, you are compensated because the building itself, as well as what’s inside it and the materials holding it together, will become worn out over time.
It doesn’t matter if any of this was initially paid for by a developer or previous owner, you can continue to claim deductions as the property and its sundries lose value.
Obtaining a depreciation schedule from a quantity surveyor can mean significant tax deductions.
If your property was built after July 1985, there are two types of depreciation you can claim: Plant and Equipment – which means items like appliances, carpets and blinds; and also Building Allowance, which means construction costs like concrete and brickwork.
A Quantity Surveyor will conduct a site inspection, where they note and photograph all depreciable items.
They then provide you with an itemised schedule.
The documentation will come in handy if you are later audited.
The cost of having a depreciation schedule prepared can vary, but most surveyors guarantee you will save more than the cost of the fee, which is tax deductible.
Make sure that when you are sourcing a quantity surveyor, they are a member of the Australian Institute of Quantity Surveyors (AIQS).
This will protect against dodgy or at least unqualified operators.
Depreciation schedules will usually take two to three weeks to complete and can also take into account tax returns from up to two years ago.
Tim McIntyre is the senior real estate reporter for the Daily Telegraph and News.com.au.
Over the past decade, he has attained widespread knowledge of Australia’s many unique property markets and is an authority on all things buying, selling and investing.
His commentary appears every Saturday in the Daily Telegraph Real Estate lift out, as well as online at news.com.au.