FREQUENTLY ASKED QUESTIONS ON TAX DEPRECIATION SCHEDULES
- What is Tax Depreciation?
- How does Tax Depreciation benefit the Tax Payer?
- What is a Tax Depreciation Schedule?
- How much Depreciation can I expect from my property?
- Isn’t Tax Depreciation only available on newer properties?
- Do I need a new Tax Depreciation Schedule every tax year?
- Can Tax Depreciation Schedules be transferred between owners?
- Why do you need to conduct an Inspection on my property?
- Am I able to Depreciate Improvements / Renovations to the property undertaken by previous owners?
- What if I don’t have receipts for the Renovations / Improvements?
- What if my property is fully or partially Furnished?
- What if I make Improvements to the property in the future?
- Is Depreciation available on Commercial Properties?
- As the owner of a unit or apartment, am I entitled to claim Depreciation on Body Corporate or Common Areas in the complex?
- When should I have a Tax Depreciation Schedule prepared for my property?
- When can I start claiming Depreciation?
- Does Depreciation affect Capital Gains Tax?
- What do I do with my Tax Depreciation Schedule?
- Who prepares Tax Depreciation Schedules?
- What do I need to know when sourcing a Tax Depreciation Schedule?
- Why should I choose TSL Pty Ltd to prepare my Tax Depreciation Schedule?
- Does TSL Pty Ltd offer me any Guarantee?
1. What is Tax Depreciation?
Tax Depreciation is a dollar amount that the Australian Taxation Office (ATO) will legitimately allow a Tax Payer to claim on items that decline in value as they age. Depreciation can be claimed on a variety of items from computers and cars to residential and commercial investment properties.
The Income Tax Assessment Act 1997 allows owners of both residential and commercial investment properties to claim annual deductions for depreciation on:
- Main buildings and structural improvements
- In the case of body corporate, a portion of common areas and common equipment
- Plant and Articles (light fittings, floor coverings, kitchen appliances, etc)
2. How does Tax Depreciation benefit the Tax Payer?
The main purpose of Tax Depreciation is to save you money. Tax Payers can reduce the amount of tax they pay be offsetting depreciation on their assets against their taxable income.
Generally, property investors pay too much tax and do not capitalise on the tax depreciation advantages available to them. In fact, research shows that only 1 in 5 of all property investors fully utilise the advantages of their investments to maximise their legitimate tax depreciation deductions.
For an investment property you are able to claim depreciation on the building itself (Capital Allowance) and the fixtures and fittings of the property (Plant and Articles).
Property investors can maximise their tax benefits by claiming substantial tax deductions each year, resulting in enhanced cash flow. The cost of having Tax Depreciation Schedules prepared is 100% tax deductible, as long as they are prepared by a qualified Quantity Surveyor, and are a worthwhile investment.
3. What is a Tax Depreciation Schedule?
A Tax Depreciation Schedule is a holistic report, prepared by a Qualified Quantity Surveyor, capturing all depreciable components of your investment property. It lists all your investment's various items, the amount of wear left in them (effective life) and the dollar value you can claim against your assessable income.
Your report should:
- Include depreciation on both Capital Allowances and Plant & Articles, by clearly identifying each depreciable item and providing accurate calculations and figures which can be legitimately claimed on your personal tax return
- Provide calculations and figures for the full depreciable lifetime of the property - up to 40 years
- Capture all improvements made to the property since its initial construction.
Unless you undertake major renovations to the property in the future, you should never need to have another report prepared for your property. For any improvements you make to the property, simply retain your receipts and forward these to your accountant who should be able to incorporate these additions into your existing Schedule.
4. How much Depreciation can I expect from my property?
The total depreciation that can be claimed will vary from property to property. This will depend, among other things, on the age and condition of the property. Naturally, more depreciation will be identified in brand new properties, as the full 40 year depreciable lifetime will be available. As explained previously, properties constructed prior to 1985 will not be eligible to claim the Capital Allowance component of depreciation. However depreciation on all Plant and Articles in the property will still be available. All renovations and improvements to the property will also be included in the depreciation calculations.
You can be assured that TSL Pty Ltd will maximise your legitimate Tax Depreciation claim.
Examples of depreciating expenses are as follows:
|Hot Water System
||Formulae: asset cost x (365 days owned / 365) x (200% / effective life)
for assets held on or after 10 May 2006.
Examples of deductions for properties eligible to claim Capital Allowance depreciation
Capital Works Costs
Depreciation Expense (year 1)
|July 85 – Sept 87
|Sept 87 – now
||For properties with construction completed prior to Sept 87, Capital Allowance depreciation is claimed over 25 years.
Properties completed after Sept 87 depreciate Capital Allowance over 40 years.
5. Isn’t Tax Depreciation only available on newer properties?
Tax Depreciation is available on all properties, both new and old.
Both Capital Allowance depreciation on the building itself and Plant and Articles depreciation are available on properties built after 1985 (the cut-off year as determined by the ATO).
Although properties built prior to 1985 do not qualify for the Capital Allowance component of depreciation, all improvements and renovations made to the property since its construction, however minor, can be depreciated from the date they were completed. This can include major renovations such as extensions, garages, carports and pergolas to more modest improvements such as updated kitchens and bathrooms, repainting, and new floor and window coverings.
You will be surprised at the amount of depreciation available in older properties.
|TSL Pty Ltd offers a Company Guarantee to all clients that “WE WILL FIND YOU AT LEAST DOUBLE YOUR FEE IN DEPRECIATION IN THE FIRST FULL CLAIMABLE YEAR, OR YOUR REPORT IS FREE”.
6. Do I need a new Tax Depreciation Schedule every tax year?
No. A Tax Depreciation Schedule prepared by TSL Pty Ltd will provide yearly calculations for the full remaining depreciable lifetime of the property (up to 40 years). The only time we recommend that a client updates their Tax Depreciation Schedule is if they make major structural changes to the property (eg an extension), or if they undertake a major renovation where many of the existing fixtures and fittings are replaced.
7. Can Tax Depreciation Schedules be transferred between owners of a property?
No. A Tax Depreciation Schedule prepared for a previous owner of your property can not be transferred to you as part of the purchase. Tax Depreciation Schedules are personalised reports for individual owners of a property.
Older reports often do not capture improvements or renovations to the property after the issue date and therefore do not accurately reflect the full depreciation available in the property.
8. Why do you need to conduct an Inspection of my property?
It is very important that we undertake a full inspection of your property for a number of reasons:
- TSL Pty Ltd prides itself on operating under strict ATO and Australian Institute of Quantity Surveyors (AIQS) guidelines. In order to produce and certify a legitimate Tax Depreciation Schedule, we are required to conduct a full property inspection.
- We are able to identify, and assign a value to, every depreciable component of your investment property.
- We are able to identify all improvements and renovations to the property, some of which you may not even be aware of.
- We are able to take measurements of your property to accurately calculate things like carpets, window covering, etc, and to produce an indicative floor plan for inclusion in your Tax Depreciation Schedule.
- We take photographs of your property for inclusion in your Tax Depreciation Schedule.
Companies or individuals who prepare Tax Depreciation Schedules without conducting a full property inspection simply cannot certify that the calculations provided are legitimate and accurate.
Don’t risk it. Inferior Tax Depreciation Schedules will not withstand an ATO audit.
9. Am I able to Depreciate Improvements / Renovations to the property undertaken by previous owners?
Yes. All renovations / improvements to a property undertaken by previous owners can be legitimately depreciated by you.
10. What if I don’t have receipts for the Renovations / Improvements?
No need to worry. As Quantity Surveyors we are experts at identifying and assigning a legitimate value to renovations and improvements to properties.
11. What if my property is fully or partially Furnished?
You are able to claim depreciation on all furniture and furnishings included in the lease. If you can provide us with a furniture inventory, great! If not, don’t worry. Our Quantity Surveyors will document all the furniture and furnishings and these items will then be included in your depreciation calculations.
12. What if I make Improvements to the property in the future?
That’s no problem at all. If you replace any items in your property (eg oven, dishwasher, toilet, floor coverings, window coverings, etc) in the future, simply retain your receipts and pass these on to your Accountant. They will then incorporate these additions into our existing figures.
13. Is Depreciation available on Commercial Properties?
Definitely. TSL Pty Ltd prepares Tax Depreciation Schedules for both residential and commercial properties.
14. As the owner of a unit or apartment, am I entitled to claim Depreciation on Body Corporate or Common Areas in the complex?
Yes. As an investor in a complex or apartment building, you also own a percentage of the Body Corporate or Common Areas. Your Tax Depreciation Schedule will include depreciation of all Body Corporate or Common Areas for your complex, based on your percentage ownership of same.
15. When should I have a Tax Depreciation Schedule prepared for my property?
In short, we can prepare a Tax Depreciation Schedule for your investment property at any time during your ownership.
Ideally, you should have a Tax Depreciation Schedule prepared for your investment property upon settlement or within the first tax year in which you own the property. The ATO will only allow you to back claim depreciation for up to 2 years, so it’s important to make sure your Accountant is claiming the maximum in legitimate depreciation on your property from the outset.
If you have owned the property for a number of years and have not yet claimed any depreciation, don’t delay any further. You may have already missed out on claiming benefits you are entitled to. Call us now to arrange your Tax Depreciation Schedule and start claiming what is rightfully yours.
16. When can I start claiming Depreciation?
Your Tax Depreciation Schedule commences from settlement for an investment property. If you have previously resided in the property yourself, your Tax Depreciation Schedule commences the date the property was first available for lease.
You are entitled to claim depreciation from the commencement date. However, the ATO will only allow you to back claim depreciation for up to 2 years. So if you have owned the investment property for longer than 2 years, you may miss out on claiming any previous depreciation entitlements. Your Accountant will be able to advise regarding back claiming depreciation.
17. Does Depreciation affect Capital Gains Tax?
Yes. Claiming the complete depreciation allowances on your investment property does not adversely affect your capital gains tax position. You are free to claim all deductions and CGT rulings remain the same.
You will, however, be required to add your capital allowance deductions to your capital gain when and if you decide to sell your investment. Remember, if you hold the property for longer than 12 months you may be entitled to the CGT discount.
That said, you will be required to add capital allowance deductions to your capital gain whether or not you have actually claimed same.
Keep in mind that the additional cash flow available from your depreciation can be utilised for additional repayments, adding value to your asset or as a guard against future vacancy. If you consider the indexing value, the money you receive from depreciating is worth far more today than some time in the future.
18. What do I do with my Tax Depreciation Schedule?
Provide a copy of your Tax Depreciation Schedule directly to your accountant. At the end of each financial year your Accountant need only reference your report and claim the nominated dollar amount in depreciation on your tax return.
Ensure that you provide your accountant with any receipts for improvements to the property so these may be incorporated into your depreciation claim.
19. Who prepares Tax Depreciation Schedules?
Your report should be prepared only by a Qualified Quantity Surveyor (QS) and certified by a Full Member of the Australian Institute of Quantity Surveyors (AIQS).
Be wary of non-qualified companies and / or individuals offering Tax Depreciation Schedules.
Important Legislation was recently passed whereby individuals or companies preparing Tax Depreciation Schedules have to be registered Tax Agents.
This is a contradiction to previous and other legislation whereby a suitably qualified person, such as a Quantity Surveyor, should prepare such.
Based upon the recent and previous legislation, the AIQS have made representation to Parliament stating, in simple terms, that a qualified full member of the AIQS should not need to be a Registered Tax Agent.
In addition, the AIQ has advised all suitably qualified Member Quantity Surveyors that they will support their continued preparation of Tax Depreciation Schedules.
Hence, you should ensure a fully Qualified Quantity Surveyor, who is a Full Member of the AIQS prepares your Tax Depreciation Schedule to ensure it withstands an ATO audit.
The ATO continues to state that Valuers, Real Estate Agents, Accountants and Solicitors do not generally have the relevant qualifications or experience to assess and calculate Capital Allowance depreciation based upon construction costs. Qualified Quantity Surveyors are specialists in this industry and, as such, are identified by the ATO as the appropriate professionals to produce Tax Depreciation Schedules.
A compromise on your Tax Depreciation Schedule will not withstand an ATO Audit.
20. What do I need to know when sourcing a Tax Depreciation Schedule?
When making initial enquiries with companies or individuals regarding the preparation of a Tax Depreciation Schedule for your property, be sure to ask the following questions:
- Are you a Qualified Quantity Surveyor?
- Are you a Full Member of the Australian Institute of Quantity Surveyors?
- Will you conduct a full inspection of my property?
- Will my Tax Depreciation Schedule cover the full depreciable lifetime of my property (up to 40 years)?
- Will my Tax Depreciation Schedule be certified by a Full Member of the Australian Institute of Quantity Surveyors?
- Is my fee fixed (ie, no hidden extras)?
- Do you provide your invoice for payment once my Tax Depreciation Schedule is completed, and not before?
- Do you offer a Company Guarantee?
If a company or individual answers ‘NO’ to any of these questions, do not engage their services. A fully Qualified Quantity Surveyor offering a reputable and professional service will answer ‘YES’ to all of these questions.
21. Why should I choose TSL Pty Ltd to prepare my Tax Depreciation Schedule?
TSL Pty Ltd is a Chartered Quantity Surveying firm providing a full range of Quantity Surveying services to both the public and private business sectors as well as to individuals. These services include, but are in no way restricted to:
- Tax Depreciation
- Building Cost Estimates
- Insurance Replacement Assessments
- Construction Contract Consulting and Management
- Expert Witness Reports
TSL Pty Ltd specialises in Tax Depreciation with a dedicated division in the field to help you maximise your tax benefits.
Owned and operated by Steve Lunniss, Director and Tracey Lunniss, Associate Director, together they have over 40 years of International Chartered Quantity Surveying experience and have provided integral QS services on International Projects in Europe, Asia, the Middle East and Australia. Both are full members of the Australian Institute of Quantity Surveyors (AIQS) and the Royal Institute of Chartered Surveyors (RICS). Tracey is the incumbent Secretary of the Queensland Chapter of the AIQS.
All Tax Depreciation Schedules completed by TSL are prepared by Qualified Quantity Surveyors and are fully certified by our Director (an Associate Member of the AIQS and RICS).
Tax Depreciation Service
TSL Pty Ltd offers Tax Depreciation services Australia-wide and regularly assists clients residing overseas. Being mindful of the complexities of working in with all parties, TSL deal directly with Property Managers and / or Tenants to arrange property inspections providing a more personalised approach and delivering all the necessary property and body corporate searches as appropriate.
Conducting a comprehensive property inspection on every Tax Depreciation Schedule prepared ensures that all depreciable components of your property are identified. By engaging the services of TSL Pty Ltd you can feel confident knowing that your report will be correct and accurate and, most importantly - saving you dollars.
Tax Depreciation Schedules include:
- Depreciation calculations for both Capital Allowance (if applicable) and Plant & Articles depreciation for the full depreciable lifetime of your property (up to 40 years) using two different methods (Prime Cost and Diminishing Value – your Accountant will advise which is the most appropriate for you to use depending on your individual circumstances)
- Low value pooling items
- Photographs of the property
- An indicative floor plan of the property, if an original is not available
- All reports are emailed upon completion and certification in PDF format making it easy to forward this onto accountants, and you will also be posted a bound hard copy.
Fees and Charges
Depending on your location, size and complexity of task, costs may vary. However, when you receive a quote – it is a fixed fee. You can reduce your cost by $25.00 and take up the ‘special offer’ by requesting an emailed PDF copy of your report, and not a bound hard copy. Fees and charges include:
- 100% tax deductible
- No payment upfront – you receive our invoice with your completed Tax Depreciation Schedule
- Payment terms strictly 7 days
- Payments accepted via cheque, credit card and direct credit to our bank account.
Tax Depreciation Report + Insurance Replacement Assessment – Additional Service
Unfortunately, most investment properties are grossly underinsured. The good news is ... TSL Pty Ltd offers an ‘Insurance Replacement Assessment’ in addition your Tax Depreciation Schedule.
This Insurance Replacement Assessment provides a full construction cost estimate to rebuild to a similar standard should the property ever be lost to fire, flood, natural disaster, etc. For a further investment of $150.00 inc GST you can take advantage of this additional service. You’ll have peace of mind knowing your investment is financially protected once insured for its true value.
Does TSL Pty Ltd offer me any Guarantee?
TSL Pty Ltd has complete confidence in our professional service and superior product. We take pride in offering our clients our Company Guarantee...
‘If we can’t find you at least double your fee in depreciation in the first full claimable year, your report is .... FREE’
That’s right – It won’t cost you a cent, because our experience has clearly demonstrated that clients more than doubled their tax savings with our Tax Depreciation Schedules.
You can check out the comparisions between other providers here or take me to the booking page now....