Depreciation is the wearing out and aging of an asset over time. If you own a rental property, a quantity surveyor must prepare a tax depreciation report to ensure that you maximise your claim according to tax laws. The Australian Taxation Office (ATO) can reduce the tax deducted from a rental property if you submit your tax depreciation schedule on time. This article examines vital facts about tax depreciation schedules for rental property owners.
1. Division 40 Items (Plant and Equipment)
A depreciation schedule should be structured to maximise deductions. Therefore, assets should be differentiated between Division 40 and Division 43 items. Division 40 refers to the depreciation of removable fixtures and fittings in an investment property, also known as plant and equipment. The ATO has a guide that sets the useful life and depreciation deduction for different plant and equipment items. Examples of Division 40 items include curtains, blinds, air conditioners, vinyl, and furniture. Such items depreciate faster and can be claimed at a rate of 20% over ten years.
2. Division 43 Items (Capital Works Allowance)
Division 43 items form the structural elements of a property. Also, items in a building that are considered irremovable form part of the capital works allowance. Examples of Division 43 items include walls, ceiling, roof, flooring, and foundation. Other fixed assets include doors, windows, built-in cupboards, and tiles. A quantity surveyor can help claim depreciation deductions by estimating or calculating a property's historical construction costs based on its age and type.
3. Updating a Depreciation Schedule
A property investor can decide to replace or add assets to their investment property. In this sense, they should update their tax depreciation schedule to claim on the added items. For example, suppose that you decide to install a new air conditioning system on your property during renovation. In this case, you should include the new item in the updated tax depreciation schedule so that you can claim the deduction at tax time.
A quantity surveyor might need to visit a property to assess the cost of the new item for updating a tax schedule. However, suppose you have relevant information, such as the cost of an item, the installation date, and the purchase and installation receipts. In that case, a tax consultant will update the depreciation schedule without visiting your property. Some consultants charge nothing to update a depreciation schedule while others charge a few hundred dollars.
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