Taxation Benefits Of Investment Apartments

Market Insights
8 years ago
4 minutes

Owners of investment properties are often unaware of all the taxation benefits an investment property can generate.

Property investors are entitled to claim a tax deduction on their property for all the standard losses including interest, insurance, real estate management fees, rates, repairs and maintenance. One of the most beneficial but often missed deductions is property depreciation. It is commonly missed due to the fact that property investors do not have to spend money to claim it.

“Research shows that 80% of property investors are failing to take advantage of property depreciation and are missing out on thousands of dollars in their pockets,” said Bradley Beer, Managing Director of BMT Tax Depreciation.

As a building gets older, items wear out – they depreciate. The Australian Taxation Office (ATO) allows property owners to claim this depreciation as a deduction. Depreciation can be claimed by any property owner who obtains income from their property and can be claimed on a buildings structure as well as the plant and equipment items held within.

Plant and equipment assets are commonly defined as removable assets.  Each plant and equipment item has an effective life set by the ATO. The depreciation deduction available on each item is calculated based upon its effective life.

Some depreciable plant and equipment items commonly found within a property include:

  • hot water service
  • ceiling fans
  • dishwashers
  • carpet
  • blinds
  • exhaust fans
  • light shades
  • solar panels
  • ovens
  • furniture
  • range hoods
  • smoke alarms
  • garbage bins
  • vinyl
  • clothes dryer
  • curtains
  • cook tops
  • door closers

In some states, common property and assets within an apartment or unit complex can also be depreciated and claimed as a deduction. Examples include swimming pools and lifts.

Often property investors rent out their property fully furnished. Depreciating furniture can add thousands of dollars to the owners depreciation claim.

Case study

The below table provides an example of the difference that claiming depreciation on a $16,000 furniture package could make to an investor who purchased a two bedroom two bathroom unit:

It is important that a specialist Quantity Surveyor prepares a tax depreciation schedule for an investment property prior to the owner lodging their tax return.

A Quantity Surveyor will carry out an inspection to identify all the plant and equipment items contained within the property and provide a schedule including the estimated cost for each item and its contribution to the depreciation total per financial year. The schedule will take into account the effective life for each individual plant and equipment item.

By employing methods of depreciation such as immediate write-off and low-value pooling, a Quantity Surveyor can claim depreciation at a higher rate to maximise the deductions available.

Immediate write-off can be applied to any item within a property which costs less than $300. These assets value can be claimed in full within the first financial year.

Low-value pooling can be applied to two different categories of assets; low-cost assets and low-value assets. A low-cost asset is a depreciable asset that has an opening value of less than $1,000 in the year of acquisition. A low-value asset is a depreciable asset that has a written down value of less than $1,000. That is, the value of the asset is greater than $1,000 in the year of acquisition. Property investors who place assets in the low-value pool are able to claim them at a rate of 18.75% in the year of purchase, and at a rate of 37.5% from the second year onwards. This rule allows for an increased depreciation deduction on qualifying assets.

BMT Tax Depreciation is a Quantity Surveying firm who specialise in utilising these methods to maximise depreciation. BMT completes tax depreciation schedules for over 10,000 Accountant referrals each year, with reports showing an average of $5,000 to $10,000 as a first full year deduction for residential properties.

BMT Tax Depreciation also guarantees to double their fee worth in deductions in the first full financial year or they will not charge for their services.

Property owners who would like a free, over the phone assessment of available deductions should contact BMT Tax Depreciation on 1300 728 726.