Depreciation

Depreciation schedules cover the building itself, as well as the internal fixtures, fittings, improvements etc. This includes items which already existed at purchase, so long as the items are still depreciable by their age.

There’s a whole other bunch of other factors including low value pools etc, where you can writeoff a lot of depreciation very early on – it’s not a simple calculation, hence why it’s well worth getting the experts in.

Many Depreciation companies will only complete a depreciation schedule if there is sufficient deductions to cover the report in the first year at a minimum. I personally use and recommend http://www.depreciator.com.au for clients needing depreciation schedules – they’re well known for their fantastic service and quality of their reports.

Clients of my business also receive a slight discount on their reports if they let me know they need one – feel free to flick me an email if you’re interested.

I wouldn’t say it would be a huge factor, as the majority of properties pre/post ’85 have had works completed to them, which plays into the calculations. I’ve got properties build in the 60’s which have 5-6k depreciation in yr 1 because of renovations, whereas I also have late 80’s properties with limited depreciation at all.

Buy investments which have strong fundamentals – depreciation is just the icing on the cake.

Hi Fudge111,

Residential buildings built after 17 July 1985 depreciate by 2.5% per annum of the original construction cost. This can be claimed for a total of 40 years with year one providing you with the highest claims.

Because you receive the most depreciation in year one, buying a brand new property or a property off the plan allows you to reap in these savings, which an older property won’t be able to provide you with (unless you renovate it, or it has been renovated). Also, say you purchase an established property that was built in 1987, this makes the property 28 years old this year, meaning you only have 12 years left to claim depreciation.

You can claim depreciation on internal fittings and fixtures, which includes things like carpets, air-conditioning systems, blinds and microwaves. These can depreciate from anywhere between 10% to almost 40% per annum for the first five years depending on the initial cost. If these items cost less than $300, these costs can be claimed straight away.

As Corey mentions, it is best to seek the advice of a Quantity Surveyor and get a depreciation schedule drawn up to know exactly what you can and cannot claim.

Don’t forget that depreciation is a way to reduce your taxable income and can only be claimed on investment properties that are producing an income, but you should not be solely buying an IP based on reducing your tax.

Hi fudge

Whilst Mark will spin you all the reasons why you should buy new also remember that any Capital Allowance claim made on property during your period of ownership reduces the Cost Base when you come to sell the property and increases the CGT payable accordingly.

For you purchased a property for $500,000, claiming an amount of $50,000 in Capital Allowance claims during the period of ownership the cost base when you sell the property will now be $450,000.

As Cory mentions Tax credits are a bonus and could be reduced or scrapped at any time by the Government.

When you read that the cost of negative gearing in this Country is $20 B / Annum it is almost inevitable that the May budget will bring with a raft of changes to property claims.

Cheers

Yours in Finance