A Tax Depreciation blog by Paul Bennion.
With the start of the new financial year fast approaching, property investors throughout Australia are now getting their paperwork ready to lodge their tax returns.
Property investors historically have been targeted by the ATO and if you are a first time property investor, it is therefore important that your tax returns are accurate.
Some common mistakes identified by the ATO that property investors can make include:
claiming rental deductions for properties not genuinely available for rent
incorrectly claiming deductions for properties only available for rent part of the year such as a holiday home,
incorrectly claiming structural improvement costs as repairs when they are capital works deductions, such as re-modelling a bathroom or building a pergola, and
overstating deduction claims for the interest on loans taken out to purchase, renovate or maintain a rental property.
Another area where first time investors can make errors relates to tax depreciation.
The tax benefits associated with tax depreciation can be very signification as they can be equivalent to 60% of the total purchase price of the property. In some cases these tax benefits can total $300,000 based on a purchase price of $500,000
To qualify for these legitimate tax deductions, an investor must have a fully compliant tax depreciation company undertake an onsite inspection of the property and then compile a depreciation report based on this inspection.
Estimates of tax depreciation benefits for an investment property made from an office desk will not be accepted by the ATO.
Depreciation is a complex area of taxation that requires a professional company to undertake a depreciation report because of constant changes in rules.
Property investors should check that the company undertaking their tax depreciation schedule is a member of The Australian Institute of Quantity Surveyors (AIQS).
AIQS is the professional standards body for quantity surveyors throughout Australia and enjoys a close working relationship with the ATO.
Over recent years AIQS has worked with the ATO on the review and revision of the requirements for investment/rental property depreciation reporting.
DEPPRO is an Associate Member of AIQS and uses systems that are fully compliant with ATO rulings.
Property investors should understand that tax depreciation is complicated like other areas of finance or tax and so it is essential that property investors get the right advice.
For depreciation professionals, having the appropriate training and qualifications and being a member of organisations such as the AIQS is critical in ensuring you can provide the best advice for your clients.
Without it, it is impossible to keep up-to-date with legislative requirements. Companies whose representatives are not members of AIQS are also not bound by any Code of Professional Conduct.
Property investors should be wary of companies who are not members of AIQS and employ salesmen or women touting catch phrases and a more dubious approach to providing advice in relation to tax depreciation entitlements.