Investors who have only owned a property for a short period of time often ask the question: is it worthwhile making a depreciation claim straight away?
The answer is yes, even if a property has been purchased towards the end of a financial year, valuable deductions are available for the owner straight away.
Investors can make the mistake of postponing organising a depreciation schedule until the following year. However, a specialist quantity surveyor will find ways in which partial year depreciation deductions can be maximised, resulting in extra cashflow for the owner.
A quantity surveyor who specialises in tax depreciation will use their knowledge of Australian Taxation Office legislation to increase deductions. They also will utilise the most current methods of calculating depreciation to make partial-year claims more beneficial to property owners, regardless of the time a property is owned and rented.
Here are some of the legislated mechanisms which, if used correctly, will increase the cash return.
Immediate write-off: Any item costing less than $300 within a property can be immediately written off within the first year of ownership. This is regardless of how many days the property has been owned within that year.
Low-value pooling: This is a method of depreciating assets at a higher rate to maximise depreciation deductions. Property investors who place assets into the low-value pool are able to claim them at a rate of 18.75% in the year of purchase, regardless of how long the property has been owned and rented. From the second year onwards, the remaining balance of the item can be claimed at an accelerated rate of 37.5%.
Low-cost assets: Any depreciable asset that has an opening value of less than $1,000 in the year of acquisition is considered to be a low-cost asset. These assets can be included in the low-value pool, resulting in an increased depreciation rate.
Low-value assets: 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. However, the remaining value after a previous year’s depreciation claim has been reduced to under $1,000. These assets can be added to the low-value pool as they qualify.
Scrapping: Scrapping is the removal and disposal of any potentially depreciable assets from an investment property. If a property investor decides to improve an investment property and removes any assets during the process, they can claim these items as an immediate tax deduction. It is important to ask a quantity surveyor to perform a site inspection both before and after renovations are completed so they can identify any remaining depreciable value of the items which are going to be removed during the process.
If a property owner has only owned and rented a property for a few weeks of the financial year, the owners should always seek the services of a specialist quantity surveyor to accelerate the depreciation claim available.
By utilising the legislation available from the ATO, depreciation claims can truly be maximised for the first partial year. A tax depreciation schedule will also outline all remaining deductions for the lifetime of the property (40 years). In most cases, future year claims will also be maximised by using these tools to calculate the depreciation deductions available.
Reproduced in part with permission: Property Observer Claim $4,852 in 29 days 24 May 2013
Attention: This article is intended to provide general information only. Every attempt has been made to ensure the accuracy of this information at the date of publication. The opinions expressed in this article do not reflect those of DHA, its staff or agents. Property prices are subject to fluctuation. Prospective investors should seek independent advice. DHA will not be liable for any loss, damage, cost or expenses incurred or arising by reason of any person relying on information in this article.