Tax Q&A: Your Tax Questions on Depreciation Schedule and Tax Return Claims, Answered
Q: I have just bought an investment property, which I plan to renovate in about six months’ time. It was leased when I bought it, and the lease runs out in October, so I plan to renovate it when my tenant moves out.
I’m not sure whether I should get a depreciation schedule done now so I can make a claim on my tax return this year, or wait until I’ve completed the renovation(and will therefore have a much better depreciation schedule)?
It seems like I will miss out on tax deductions this year, but I don’t want to spend the money on getting two depreciation reports. Which would be the best course of action?
- Thanks, Wayne
A: There are a few different things to consider here, starting with your initial acquisition.
As the property is income-producing, then you are able to claim allowances, as you point out. To get the benefits available to you, you should prepare an initial schedule that details all
the deductible items as at the time of settlement.
Deductions would be for depreciable plant under Division 40 and for structural items under Division 43, which will only apply if the building is young enough. You can then claim these allowances from settlement up until the point when either the property is no longer earning income or you decide to commence the renovation.
Having this initial schedule will provide you with the base document for your deductions going forward and also the base document to alter after you have completed the renovations. Continue reading
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
