The Australian Taxation Office (ATO) gives specific guidelines to the way that assets are to be treated for depreciation purposes, with rental properties making up one of the biggest deductions available to investors. Unfortunately some investors fail to claim these deductions.
There are many reasons why depreciation is overlooked, but the most common reason is that many investors lack the necessary understanding of how depreciation works.
What Can I do to Claim Depreciation on my Investment Property?
Mr Robert Projeski, the Managing Director of Australian Mortgage Options (AMO) explains: "Once an investor has worked out the interest rate, buying expenses and other considerations, AMO would than recommend that they use a quantity surveyor.”
Mr Projeski, goes on to explain that the job of the quantity surveyor is to go out and inspect a property, take photographs and document all depreciable items within a building. They use this information to work out the depreciation allowed by the ATO on plant, equipment and building allowance. This information is presented as a depreciation schedule which the investor can use to claim depreciation against their taxable income.
The only exception to this rule is that you cannot claim depreciation on your own principal place of residence. However, if you move out of your house and put it up for rent, than depreciation applies and a quantity surveyor can be called in to help prepare a depreciation schedule.
What if I make further Improvements to my Property?
Many investors often make improvements to their investment property over time, such as installing a new rangehood or replacing a broken air conditioning unit. If you make these improvements, you should contact the quantity surveyor and ask that the deprecation report be amended to reflect the new item. Many quantity surveyors will often make minor amendments to the depreciation schedule free of charge, and without the need to book a reinspection.
When Should I Update a Depreciation Schedule?
If you plan on making major renovations to the property, such as adding an extra room or garage, your depreciation schedule may be considered invalid by the Australian Taxation Office. Therefore you should contact the quantity surveyor to discuss your renovation project, so that the surveyor can determine if a reinspection is needed and whether the existing schedule should be updated.
Lodging a PAYG withholding variation application (e-variation)
Mr Projeski recommends talking to your accountant about lodging the PAYG withholding variation application to reduce your PAYG withholding rate for the financial year. He adds: "instead of waiting until the end of the financial year to get a refund, you can get that refund in your wages. A large portion of that (refund) would be other holding costs, but a significant proportion would be from the depreciation schedule prepared by a professional quantity surveyor.
As a property investor, you want to keep an accurate record of the depreciating assets in your property. It often pays to contact a reputable company who can give you the right advice and who can help to keep your depreciation schedule up-to-date. This will not only satisfy the record keeping requirements of the Australian Tax Office, but it will help to reduce your income tax leaving you with more money in your pocket!