Depreciation dilemma : Is it better to buy new or old properties?
When considering depreciation, which will gain the greatest benefit from capital allowances: new or old properties? That is the ongoing question – one that Paul Mazoletti from Napier & Blakeley aims to answer once and for all. Paul Mazoletti is a director at Napier & Blakeley, the first provider of depreciation schedules in the Australian market (since 1985).
Depreciation (capital allowances) can be a valuable tax deduction for any property investor and a great way to reduce your taxable income. However, the question of old versus new does come up a lot in discussions with investors. So, who is right and who is wrong? With effect from 9 May 2017, if you are focusing on capital allowances deductions, new property is the better way to go. We could also suggest that neither is the ‘best’ way, as there are advantages to both. However, if legislation is passed soon, the proposed changes will certainly lean you towards buying new.
The benefit of newer properties
The main benefit of buying a new investment property is that this will provide a higher total base tax deduction entitlement, when considering the combined value of fixtures and fittings the building structure’s value. Deductions through the depreciation of fixtures and fittings under Division 40 may now only be available on any new investment property asset acquisition made after 9 May 2017. Deductions through the depreciation of the building structure under Division 43 are also available on both new and older assets; we’ll explore this further later in the article. The ATO introduced capital allowances in 1985 for the residential sector, coincidentally at the same time as Napier & Blakeley opened its first office in Australia and launched its capital allowances business. Continue reading
Property Depreciation and Natural Disasters
Over the last 6 months, with the unfortunate spate of different Natural Disasters occurring Napier & Blakeley have been requested from numerous clients what effect does it have on their existing and future capital allowances for their investment properties.
The question arises where funds from a third party such as an insurer pays for capital works.
No Insurance
Where there is no insurance claim, then all demolished capital items may be written off from the date of demolition. All newly installed and refurbished costs may be claimed once works have been completed.
Tip – ensure you keep all records of expenditure including all associated on costs such as skip hire, professional fees and the like.
