A Property blog by Paul Bennion.
If a property is being used for investment purposes, the Australian Tax Office (ATO) allows a property investor to claim the decline in value of the building by way of a tax deduction.
The amount that can be deducted depends on the age and value of the building but it is varies between 2.5% to 4% of the capital works value of the building each year.
An investor can claim these tax benefits by using the services of the tax depreciation specialist called a Quantity Surveyor who prepares a tax depreciation schedule.
A depreciation schedule is a report undertaken by a Quantity Surveyor company (such as DEPPRO). It generally should be undertaken when the investor buys the property.
A Quantity Surveyor, also known as a Construction Economist, or Cost Manager, is one of a team of professional advisors to the construction industry. As advisor, they estimate and monitor construction costs, from the feasibility stage of the project through to the completion of the constructed period. After construction they prepare tax depreciation schedules for property tax depreciation purposes.
The financial benefits of such a depreciation schedule can be large especially for new properties which could be up to $10,000 each year. Collectively, the value of the tax deductions for property investors throughout Australian can run into hundreds of millions of dollars.
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 schedule 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.
For example, DEPPRO sends out a staff member to the client’s property and they fill in a report and take pictures of the property to estimate depreciation benefits.
This depreciation schedule itemises the age of the property, what materials it is built from, the internal fittings such as carpets, window treatments, appliances etc. An estimated value is placed against these various items and they are depreciated depending on their age and value.
The investor gives this report to their accountant and this is used by them to work out how much tax benefits they can obtain each year.
You only need to do one depreciation report for a property and it can be updated each year by the accountant if the investor for example, installs a new kitchen.
The cost of a depreciation report as prepared by DEPPRO is around $600 and this is tax deductable.