Depreciation on Renovations – What Are Substantial Renovations and Do I Qualify?
Owning a property has never been an easy task. People might look at the security and income it provides however, they fail to notice the hassle involved in maintaining a property. The most common problem with owning property is the need to upkeep and maintain it regularly. Also, owning a property means you need to pay various taxes, and ensure you are staying updated with the latest tax laws. This blog looks at the sweet spot where both these issues converge. We will look at some nuances of the latest laws regarding a Federal tax depreciation schedule.
Recent Legislative Changes
Let us first take a step back and see what has changed recently. Earlier, the date of purchase didn’t impact the eligibility of claiming depreciation. Any depreciation on pre-existing plant and equipment was eligible. In 2017, the law was amended to state that owners were not eligible to apply for ATO depreciation rates for installations made by the previous owner. The present owner, however, was allowed to claim depreciation on renovations carried out.
Which Renovations Qualify?
The changed laws would be applicable only if the renovated property was then leased out. Also, the depreciation can be claimed only if the depreciation claim is made within six months of the property being leased out. The owner would be able to claim depreciation for both plant and equipment as also for capital works. The details of such renovations would need to be enlisted in the rental property depreciation report. Finally, there is another important point to keep in mind; after substantial renovations have been carried out, the property is also considered by this law as a new residential premises. Therefore, depreciation can be claimed on both elements of the property – renovated structure and new premises.
Let us see what kind of renovations would qualify for such depreciations. External walls, as well as interior supporting walls, are included. Similarly, renovations to the floor or the roof of the property also fall within the ambit of the modified law. Even if you are modifying staircases inside the house, you can claim depreciation for them. Some owners go deeper and even replace or remove the foundations of the structure. Even such renovations are eligible for claiming depreciation. On the other hand, it is important to remember that only ‘substantial’ changes would qualify. So if you have installed a new piece of equipment in your kitchen, it is likely not to be considered as a renovation. These fine points of the law might not always be easy for you to understand. This is why it is always recommended to use the services of a quantity surveyor. Such a professional can create a depreciation report in accordance with legal requirements.
Conclusion:
We still recommend that you utilise the services of a reputed consultant like Deppro, qualified and experienced quantity surveyors ensure that you do not miss out on any tax breaks that you are eligible for.
