How to benefit from your property’s depreciation

As a property investor, it is important to become familiar with the tax benefits available to you. When a property is being used for investment purposes, the Australian Tax Office allows investors to claim the decline in value of the building by way of a tax deduction. The total amount that can be deducted is calculated on an individual basis.

The most efficient way to claim these tax benefits is through a depreciation schedule; a report undertaken by a surveyor, usually when the property is purchased. The surveyor is responsible for providing a physical analysis of a property, clearly identifying materials used throughout the building (including fittings and flooring), internal and external wall treatments and appliances. An estimated value is placed against these items and depreciation is calculated based on the age and value of the property. Most properties regardless of their age can offer investors substantial tax benefits through obtaining this schedule.

Although depreciation can be an annual tax deduction, only one depreciation schedule is required for the property rather than a new schedule each year. However, it should be updated on an annual basis should the property need major repairs or undergo renovation. With Australians spending over $100 million every week on renovations, undertaking a tax depreciation report has never been so important.

There are certain assets within a building that generally have a higher depreciation value, including timber floorboards, air conditioning and solar power systems. Other items which are more commonly claimed for depreciation include hot water heaters, appliances and bathroom accessories, as well as smoke alarms and exhaust fans.

With all of these assets in mind, the cumulative deduction over a five year period can save the investor tens of thousands of dollars. However, to qualify for these tax benefits, it is suggested investors complete a depreciation report for the property as near as to the date of purchase as possible. If you don’t obtain a tax depreciation report then you cannot claim for these substantial tax benefits.

For advice on your investment property and how to claim depreciation, contact CPS Finance today.