9 May 2022

Property Depreciation 101; What You Need To Know

Emma McLaren

In the world of investment novices, ""Depreciation"" is a dirty word right there in the trenches with other delinquents like ""arbitrage"" and ""derivatives."" However, to the adept at property investment, depreciation can be a means to an end – a way to salvage one's bottom line when the tax collectors come knocking. ""How does that work?"" the novice might wonder. It's pretty simple: in the same way one can claim the deterioration of a vehicle bought for revenue-generating functions, one can decide to project the depreciation of an asset to reflect overall taxable income.

This is something that experienced investors do a lot, often going as far as to factor in depreciation even before buying subsequent properties. People who buy properties have the prerogative to depreciate said property and its assets against their taxable income if they decide to.

This separates people who are experienced in property investment from those who are not. And the people who are not experienced inadvertently contribute to the considerable amount of dollars that go into tax coffers unclaimed every year. To ensure this does not happen, it is a simple matter of hiring a professional quality surveyor to audit the property and prep documentation with their accountants. This helps to salvage some money every tax period.

Many people do not know about this, and that's why it becomes imperative to learn. Think of this article as an essential guide filled with fundamentals to help you save substantial amounts of money.

What does property depreciation mean?

In layman's terms, this is a sort of tax break that permits property owners to counterbalance their asset value dip against their taxable income. It is legal, a prerogative permitted by the Australian law, which allows property investors to petition for reductions from their taxable income based on the drop in value of their properties, the structures fixed to the properties, and the appliances found within the properties (these include things like washing machines, ovens, blinds, etc.).

Apart from the fact that this salvages income through tax deductions, it also takes the form of a ""non-cash"" deduction, implying that it does not have to be paid for regularly, like most tax forms. Instead, the reductions are incorporated into the property's value (the price at which it is bought or sold).

Are there properties that eventually become too old to make depreciation claims?

There are no properties too old for depreciation claims. For instance, if the property in question was built following July 1985, you as the owner would be allowed to inquire about deduction on Building Allowance (the structure itself) and Plant and Equipment. If the house were built before July 1985, you would only be allowed to make claims on Plant and Equipment; not as good as being able to make claims in both, but it is something. Of course, corporate and industry structures are liable to different cessation periods.

Am I allowed to have accountant prepare my documentation?

This depends on the period during which the structure was constructed. If it was built before July 1985, you are allowed to have accountants prep reports for you. If the property was brought up during subsequent years, however, accounts are barred from helping to estimate the price of construction.

The Australian taxation office has mandated through Tax Ruling 97/25 that, when construction prices are unknown, quantity surveyors are suitable for hire for estimation. To paraphrase the CEO of the Australian Institute of Quantity Surveyors (AIQS), Terry Aulich, accounting professionals are allowed to give counsel on different facets of depreciation and decline in value with respect to tax. They, however, do not have the jurisdiction or knowledge or savvy to deal with construction prices and real estate depreciation.

He says that the appropriate people to deal with fair estimates of construction costs are quantity surveyors. This is due to their experience and educational background in giving and forming the baseline of what would be appropriate for a property tax depreciation routine. He also asserts that with the considerable technical assistance available, it becomes brash to depend on estimated conjectures when dealing with the Australian Tax Office.

Aulich also agrees with the necessity of clients being thorough when hiring quantity surveyors. He talks about how clients should always check the credentials of potential hires. Questions to ask include the status of the surveyor as a part of the Australian Institute of Quantity Surveyors. All members are required to have a certification that indicates competence, so proof of membership essentially validates professional savvy.

Does the property need to be inspected?

Yes. This ensures that all stipulations and requirements laid down by the Australian Tax Office are met. The AIQS mandates that inspections are imperative.

Professional quantity surveyors take records of equipment that is liable to be depreciated. This ensures that all possible tax deductions are taken advantage of without fail and provides valid documentation in case of investigation.

Most quantity surveyors interact with clients directly. This fosters transparency between them and either the property managers or tenants. Some periods hold optimal value when picking quantity surveyors—for instance, hiring one after settlement and before the tenant has moved in.

Can I make claims on a property that was bought three years ago?

Of course. Accountants are needed for this; they can help you redraft tax returns made two years past. Some properties of this sort are not allowed to validate claims, so it would be better to research through the Australian Tax Office to check your eligibility.

Can I still claim depreciation after my property has been renovated?

Most of the time, renovation is fine with selling a property at an increased price. However, one can still claim depreciation despite this, and it does not matter whether it was you or previous owners that made these renovations. All one has to do is record how much was spent on the renovation and give this information to the Australian Tax Office.

Should information about the amount spent on renovation be irretrievable, the Australian Tax Office has recommended that a quantity surveyor be qualified to provide estimates.

Does the depreciation schedule cost much?

It depends. Various factors would contribute to how much one spends on making depreciation claims. Some of these factors include structure location, structure size, accessories attached to it, the type of structure purchased, etc. Quantity surveyors often do reports free of charge or offer packages that are easy on the pockets. They are also entirely tax-deductible.

Is there an estimate of how much I would save?

Again, this depends on various factors. Depreciation calculators can be found through internet searches to help you with estimates. Also, here's a little bit of advice: try not to pay for these estimates. It is a well-known fact that the best estimates are free.

How long would it take?

Usually, the whole process takes around 2-3 weeks, depending on when the surveyor is ready to inspect the property.

Other Articles

  • 10 October 2019 - Adrian Atelj
    4 things first home buyers need to know
  • 9 October 2019 - Adrian Atelj
    4 tips for planning success when selling
  • 18 December 2019 - Vic Lorusso
    4 Tips to Consider When Selecting a Builder
  • 19 April 2022 - Danielle Redford
    Key questions to ask before buying a home
  • 15 December 2019 - Adrian Atelj
    8 Must Haves When Choosing A Rental Property
  • 19 April 2022 - Danielle Redford
    How to make a winning rental application
  • 16 October 2019 - Adrian Atelj
    8 tips for negotiating with selling agents
  • 7 October 2019 - Adrian Atelj
    A guide to buying at auction
  • 5 October 2019 - Vic Lorusso
    Adding a pool: will it add value?
  • 4 October 2019 - Adrian Atelj
    Are property managers worth the cost?
  • 24 November 2019 - Adrian Atelj
    Beginner’s Guide to Starting a Veggie Garden
  • 25 March 2022 - Danielle Redford
    Breaking a Lease with your Landlord Early
  • 18 April 2022 - Emma McLaren
    Understanding your home’s useable equity
  • 9 May 2022 - Danielle Redford
    How to flip property in Australia
  • 15 October 2019 - Adrian Atelj
    Gaining the mindset of a successful investor
  • 5 April 2022 - Danielle Redford
    Homeownership in 2022: Costs of Buying a House
  • 9 October 2019 - Vic Lorusso
    Hot interior styling trends for 2020
  • 12 March 2022 - Danielle Redford
    Your guide to different house types
  • 12 March 2022 - Danielle Redford
    Conveyancing: a cheat-sheet guide
  • 19 April 2022 - Emma McLaren
    How long does it take to build a new home?
  • 12 March 2022 - Danielle Redford
    How much deposit do you need to buy a home?
  • 9 May 2022 - Emma McLaren
    How much does a new kitchen cost?
  • 12 March 2022 - Danielle Redford
    What's the average cost to build a home in 2022?
  • 9 May 2022 - Danielle Redford
    The value of building an extra bedroom
  • 5 April 2022 - Danielle Redford
    How to make the most of negative gearing
  • 19 April 2022 - Emma McLaren
    How to buy property through private sale
  • 2 October 2019 - Adrian Atelj
    How to choose an investment property
  • 9 May 2022 - Danielle Redford
    How to determine the value of a home
  • 6 October 2019 - Adrian Atelj
    How to get your property ready for sale
  • 2 October 2019 - Adrian Atelj
    How to increase your return on investment
  • 5 April 2022 - Emma McLaren
    Stress-free interstate migration
  • 4 January 2020 - Adrian Atelj
    How to Negotiate a Lower Rent and Save Big
  • 24 December 2019 - Vic Lorusso
    How To Use Plants for Shade and Privacy
  • 28 November 2019 - Vic Lorusso
    Is a Low Deposit Loan Right for You?
  • 12 March 2022 - Danielle Redford
    Is It Worth Hiring a Buyer's Agent?
  • 7 October 2019 - Adrian Atelj
    How to style your home and wow your buyers!
  • 12 March 2022 - Danielle Redford
    Making an offer on a house in 2022
  • 16 October 2019 - Vic Lorusso
    Making the transition from rent to mortgage
  • 9 October 2019 - Adrian Atelj
    Market falling? Here’s what to do
  • 4 November 2019 - Vic Lorusso
    Mortgage Cashback: What’s the Catch?
  • 19 April 2022 - Emma McLaren
    How to negotiate a home purchase price
  • 15 October 2019 - Vic Lorusso
    Nine top tips for buying off the plan
  • 1 November 2019 - Adrian Atelj
    November Monthly Market Overview
  • 18 April 2022 - Emma McLaren
    Your Complete Pre-Settlement Checklist
  • 19 April 2022 - Danielle Redford
    How to prepare your home for the rental market
  • 24 December 2019 - Adrian Atelj
    Propagating Indoor House Plants with Water
  • 12 March 2022 - Danielle Redford
    Rent-to-own your own home schemes
  • 9 May 2022 - Danielle Redford
    Checklist for a rental inspection
  • 10 November 2019 - Adrian Atelj
    Storage Hacks for Babies and Toddlers
  • 25 March 2022 - Emma McLaren
    Using Super to Buy a Property
  • 19 April 2022 - Danielle Redford
    Essential tools for DIY home renovations
  • 16 October 2019 - Adrian Atelj
    The attraction of apartment living
  • 5 October 2019 - Pat Carbone
    The home buyer’s guide to stamp duty
  • 9 May 2022 - Danielle Redford
    How to carry out an end of lease cleaning
  • 14 October 2019 - Adrian Atelj
    Tips for keeping pets safe outside your home
  • 26 December 2019 - Adrian Atelj
    Top 10 Indoor House Plants
  • 3 October 2019 - Adrian Atelj
    Top tips for picking your ideal suburb
  • 19 April 2022 - Emma McLaren
    Which Property Type Should You Buy?
  • 9 May 2022 - Danielle Redford
    What you need to know about stamp duty
  • 19 April 2022 - Danielle Redford
    What’s the purpose of a sunset clause?
  • 10 October 2019 - Adrian Atelj
    Understanding supply and demand
  • 25 March 2022 - Emma McLaren
    What is a Granny Flat?
  • 9 May 2022 - Emma McLaren
    What is a private rental?
  • 19 April 2022 - Danielle Redford
    Buying a Property Under a Private Treaty Sale
  • 12 March 2022 - Danielle Redford
    Property Valuations and How They are Calculated
  • 14 October 2019 - Adrian Atelj
    What to look for when inspecting a property
  • 9 May 2022 - Emma McLaren
    A Guide to building a granny flat
  • 27 November 2019 - Pat Carbone
    When is the Best Time of Year to Sell?
  • 9 May 2022 - Danielle Redford
    I want to sell my home; where do I start?
  • 6 October 2019 - Vic Lorusso
    Which property costs are tax-deductible?
  • 10 October 2019 - Adrian Atelj
    Why selling your home is taking longer
  • 183 of 183 articles
    Copyright © 2021 Homes.com.au Limited. All rights reserved.