The Treasurer delivered the Federal Budget on Tuesday 11 May 2021. 

Temporary full expensing of depreciating assets will be extended for an additional 12 months until 30 June 2023, allowing businesses to deduct the full cost of eligible depreciable assets acquired from 6 October 2020 and first used or installed ready for use by 30 June 2023.

• Owners should be preparing detailed listing of depreciating assets as part of the tender process thus capturing more detail and potentially more write offs at the time of completion. A detailed analysis of variations that may have happened should pick up the rest of the write offs at completion of the project.

• There is opportunity to bring “forward” capital projects for refurbishments and upgrades.

• Any projects that are on the drawing board at this time (for investment not trading stock) and potentially due for completion by June 23 should capture the potential write off amounts for their feasibility calculations. The cash flow benefit will significantly increase as a result of the write offs.

We at N&B are here to help.  Please do not hesitate to contact one of our trusted advisors for further assistance.

MELBOURNE
Rob Howells, Managing Director |  0437 649 082  |  rhowells@napierblakeley.com
Peter Frith, Director  |  0437 649 082  |  pfrith@napierblakeley.com
Craig Smith, Director |  0407 371 664  |  csmith@napierblakeley.com
John Mathew, Director  |  0414 559 326  |  jmathew@napierblakeley.com 
Ian Gardner, Associate Director  |  0488 225 569  |  igardner@napierblakeley.com

SYDNEY
Alastair Walker, Director  |  0419 503 289  |  awalker@napierblakeley.com
Peter Hammond, Director  |  0419 980 901  |  phammond@napierblakeley.com
Peter Osborn, Director  |  0439 765 571  |  posborn@napierblakeley.com
Stephen Cooke, Associate Director  |  0409 228 552  |  scooke@napierblakeley.com

BRISBANE
Adam Greene, Associate Director  |  0409 724 395  |  agreene@napierblakeley.com
Paul Cosker, Associate Director  |  0434 400 107  |  pcosker@napierblakeley.com
Gavin Peach, Associate Director  |  0412 225 781  |  gpeach@napierblakeley.com
KY Pih, Associate  |  0408 933 660  |  kpih@napierblakeley.com

PERTH
Graham Rigby, Associate Director  |  0419 847 998  |  grigby@napierblakeley.com 
Jorden Morris, Quantity Surveyor  |  0457 001 545  |  jmorris@napierblakeley.com

Following the Federal Government’s announcement of a raft of stimulus initiatives, N&B Director John Mathew has summarised how businesses can benefit from an immediate write off of their depreciating assets.

The ruling applies to assets costing $150,000 or less for eligible business, these being a business with an aggregated turnover of less than $500 million effective from 12 March 2020. The interesting part is that the date range for when assets are first used or installed ready for use is 12 March through to 30 June 2020.

Over a career preparing depreciation schedules, John commonly sees tax registers typically capitalising on all work carried out for a year, and then depreciation is calculated from the following year. 

The other extreme is that monthly progress payments for multiple separate projects are capitalised and depreciated on a monthly basis although tax law requires a “project to be completed” (ready for use) before a depreciation charge can be taken.

As the eligibility of the $150k claim is based on the first use or ready for use date, it is going to be critical that every “capital project” to refurbish, alter and enhance is properly recorded to ensure documentation is available to substantiate claims.

The Federal Government’s announcement provides an incentive to businesses for the 2019–20 and 2020–21 income years to deduct the cost of depreciating assets at an accelerated rate.

For each new asset, the accelerated depreciation deduction applies in the income year that the asset is first used or installed ready for use for a taxable purpose.

To be eligible to apply the accelerated rate of deduction, the depreciating asset must:

• Be new and not “second hand”;
• Be first held on or after 12 March 2020;
• First used or first installed ready for use for a taxable purpose on or after 12 March 2020 until 30 June 2021.

If you are a small business with an aggregated turnover of less than $10 million, and you use the simplified depreciation rules, those assets over the instant asset threshold which are eligible for the accelerated depreciation are added to the general small business pool.

You can deduct an amount equal to 57.5% (rather than 15%) of the business portion of a new depreciating asset in the year it is added. In later years, the asset will be depreciated under the general small business pool rules.

If you are an entity with aggregated turnover less than $500 million in the income year and do not use the simplified depreciation rules, you may be eligible to deduct an amount if the asset is a qualifying asset.

The amount your entity can deduct in the income year the asset is first used or installed ready for use is:

• 50% of the cost (or adjustable value where applicable) of the depreciating asset;
• Plus the amount of the usual depreciation deduction that would otherwise apply but calculated as if the cost or adjustable value of the asset were reduced by 50%.

Effectively, together with the instant asset write-off rules, the accelerated depreciation deduction applies to assets with a cost (or adjustable value if applicable) of:

• $150,000 or more in the 2019–20 income year;
• $1,000 or more in the 2020–21 income year.                                                                

An example:

N&B Investments Pty Ltd had $1,000,000 work done to their assets and the work included the following:

• New chiller No 1. $250k spend, completed and put in use 10^th March 2020;
• New chiller No 2. $250k spend, completed and put in use 20^th April 2020;
• New BMS system $140k spend, completed and put in use 1^st April 2020;
• New lift $360k completed and put in use 1^st April 2020.

Assuming that each lot of work above were individual projects and not part of a larger contract / instruction we have calculated that the claims available for the first part year ending 30 June would be as follows:  

• Pre stimulus by non-eligible business -  $36,843;
• By eligible business tax payer post stimulus using simplified rules -  $528,250;
• By eligible business not using simplified rules -  $512,651.
  

The taxflow/cashflow benefit is significantly enhanced, and it will be important for business owners to consider accelerating the capital renewal program.

Now is the time, to review depreciating assets nearing the end of their effective lives. In this environment of low interest rates there may be an opportunity to enhance your assets to meet challenges in the current market, bearing other factors in mind.

Our N&B teams of Tax Surveyors, Quantity Surveyors, Building Surveyors, Engineers and Sustainability consultants can assist you with planning, forecasting and implementing a complete solution for your property assets.

We’re here to ensure you gain the maximum benefits eligible through the immediate depreciation ruling and ongoing capital allowances for your commercial assets.

To learn more please contact our team:

	MELBOURNE John Mathew Director o.  03 9915 6300 m. 0414 559 326 e.  jmathew@napierblakeley.com		NATIONAL Paul Mazoletti National Director o.  07 3221 8255 m. 0408 749 202 e.  pmazoletti@napierblakeley.com
	SYDNEY Peter Osborn Director o.  02 9299 1899 m. 0439 765 571 e.  posborn@napierblakeley.com		BRISBANE Kath Hemphill BDM – Tax QLD o.  1300 730 382 m. 0409 722 709 e.  khemphill@napierblakeley.com

Do you own or have you bought an investment property in the past financial year?

Or…  have you recently refurbished, altered or extended your investment property in the past financial year?

Or…   do you own an investment property but have never claimed depreciation in the past?

Or…  own any property including commercial, retail, industrial, residential, pubs, clubs, sporting – we are experts in them all.

If your answer is yes to any of these questions then you may very well be paying too much tax on your income if you don’t claim your depreciation deductions.

Property tax allowances (commonly known as depreciation) provide an opportunity for owners of income producing property to reduce their taxable income, thus reducing the tax payable.

Napier & Blakeley was the first Australian company to provide specialist property depreciation services with dedicated in-house specialists to identify all available deductions throughout the life cycle of your asset.

Don’t waste any more of your money, request a quote today or contact us to get advice on how a depreciation schedule can strengthen the return on your investment putting more money in your pocket.

Please contact any of the people below for further assistance :

	BRISBANE Paul Mazoletti National Director o.  07 3221 8255 m. 0408 749 202 e.  pmazoletti@napierblakeley.com		SYDNEY Peter Osborn Director o.  02 9299 1899 m. 0439 765 571 e.  posborn@napierblakeley.com
	BRISBANE Kath Hemphill National Residential Manager o.  1300 730 382 m. 0409 722 709 e. khemphill@napierblakeley.com		MELBOURNE John Mathew Director o.  03 9915 6300 m. 0414 559 326 e.  jmathew@napierblakeley.com

For 34 years Napier & Blakeley have been providing the following services to the property industry:

• Property Acquisition & Disposal Technical Due Diligence
• Property Development Due Diligence
• Quantity Surveying
• Capital Expenditure Forecasting
• Make Good Reporting
• Energy Management
• Development Monitoring
• Property Tax Depreciation

Please contact any of the people below for more information or assistance:

SYDNEY

	Alastair Walker Managing Director m. 0419 503 289 e.  awalker@napierblakeley.com		Peter Hammond Director m. 0419 980 901 e.  phammond@napierblakeley.com
	Peter Osborn Director m. 0439 765 571 e.  posborn@napierblakeley.com		Stephen Cooke Associate Director m. 0409 228 552 e.  scooke@napierblakeley.com

MELBOURNE

	Craig Smith Director m. 0407 371 664 e.  csmith@napierblakeley.com		Rob Howells National Director m. 0437 649 082 e.  rhowells@napierblakeley.com
	John Mathew Director m. 0414 559 326 e.  jmathew@napierblakeley.com		Ian Gardner Associate Director m. 0488 225 569 e.  igardner@napierblakeley.com
	Richard McOmish Associate Director m. 0409 478 460 e.  rmcomish@napierblakeley.com

BRISBANE

	Paul Mazoletti National Director m. 0408 749 202 e.  pmazoletti@napierblakeley.com		Gavin Peach Associate Director m. 0412 225 781 e.  gpeach@napierblakeley.com
	Adam Greene Associate Director m. 0409 724 395 e.  agreene@napierblakeley.com		Paul Cosker Associate Director m. 0434 400 107 e.  pcosker@napierblakeley.com

PERTH

	Graham Rigby Associate Director m. 0419 847 998 e.  grigby@napierblakeley.com		Nick Taylor Senior Associate m. 0418 337 225 e.  ntaylor@napierblakeley.com

ADELAIDE

John Mathew Director m. 0414 559 326 e.  jmathew@napierblakeley.com

Or…  have you recently refurbished, altered or extended your investment property in the past financial year?

Or…   do you own an investment property but have never claimed depreciation in the past?

Or…  own any property including commercial, retail, industrial, residential, pubs, clubs, sporting – we are experts in them all.

If your answer is yes to any of these questions then you may very well be paying too much tax on your income if you don’t claim your depreciation deductions.

Property tax allowances (commonly known as depreciation) provide an opportunity for owners of income producing property to reduce their taxable income, thus reducing the tax payable.

Napier & Blakeley was the first Australian company to provide specialist property depreciation services with dedicated in-house specialists to identify all available deductions throughout the life cycle of your asset.

Don’t waste any more of your money, request a quote today or contact us to get advice on how a depreciation schedule can strengthen the return on your investment putting more money in your pocket.

Please contact any of the people below for further assistance :

	BRISBANE Paul Mazoletti National Director o.  07 3221 8255 m. 0408 749 202 e.  pmazoletti@napierblakeley.com		SYDNEY Peter Osborn Director o.  02 9299 1899 m. 0439 765 571 e.  posborn@napierblakeley.com
	BRISBANE Kath Hemphill National Residential Manager o.  1300 730 382 m. 0409 722 709 e. khemphill@napierblakeley.com		MELBOURNE John Mathew Director o.  03 9915 6300 m. 0414 559 326 e.  jmathew@napierblakeley.com

For 34 years Napier & Blakeley have been providing the following services to the property industry:

• Property Acquisition & Disposal Technical Due Diligence
• Property Development Due Diligence
• Quantity Surveying
• Capital Expenditure Forecasting
• Make Good Reporting
• Energy Management
• Development Monitoring
• Property Tax Depreciation

Please contact any of the people below for more information or assistance:

SYDNEY

	Alastair Walker Managing Director m. 0419 503 289 e.  awalker@napierblakeley.com		Peter Hammond Director m. 0419 980 901 e.  phammond@napierblakeley.com
	Peter Osborn Director m. 0439 765 571 e.  posborn@napierblakeley.com		Stephen Cooke Associate Director m. 0409 228 552 e.  scooke@napierblakeley.com

MELBOURNE

BRISBANE

PERTH

ADELAIDE

The property was brand new when I bought it, so I’m hoping depreciation benefits will still be available. I also have a query regarding depreciation and inheritance. If a married couple have an investment property and they are claiming plant and equipment depreciation, and then one spouse dies, can the surviving spouse (who inherited the existing investment property) continue to claim the plant and equipment depreciation?
Many thanks, Sam 

A: With regard to your first question, unfortunately you won’t be able to claim depreciation on existing plant and equipment assets due to the recent change in the depreciation legislation in May 2017.

These changes affect second-hand investment properties that were purchased and/or rented after 1 July 2017, as in your case. In these situations, plant and equipment assets are considered pre-existing and previously used.

The depreciation on your plant and equipment assets began when you purchased your property.

But they only became depreciable against your income when you started to rent out the property after 1 July 2017. You can claim plant and equipment items such as a new dishwasher, fridge, etc., if you bought these new and installed them in your second-hand property.

“You won’t be able to claim depreciation on existing plant and equipment assets due to the recent change in the depreciation legislation”

The other scenario in which you can claim depreciation is when you buy a new residential investment property such as a house or apartment, including
all assets, direct from a developer or builder.
The new legislation did not change the rules on claiming the building component of a residential investment property, so not all is lost
on claiming a tax deduction on second-hand properties purchased after 1 July 2017.

Any property owners who were leasing their residential investment properties before 1 July 2017 can continue to claim the depreciation on their assets until they replace particular assets or sell their residential property investment.

In regard to your second question, in this case the spouse’s ability to claim
will depend on the date the property was inherited. If it was before 1 July 2017, you can continue to claim the depreciation on your assets, plus building allowance, based on the values of the original inherited depreciation.

But if the property was inherited after 1 July 2017, your claim will be allowed only on the depreciation value of the building allowance.
As in the above case, the assets are considered pre-existing and previously used so are not allowed under the new changes.

The above rules also apply to investors who inherit a property from family members, relatives, friends, de factos or divorcees.

Of course, if you were lucky enough to win a property through a raffle or competition and then sold it on, the same rules would apply to the respective owners.

Need to know
- Changes in legislation have impacted depreciation claims on existing plant and equipment assets.
- Plant and equipment assets can only be depreciated if bought new.
- If the property was first leased before 1 July 2017, different rules apply.

For more information on this or any other query, please contact:

Paul Mazoletti
National Director of Property Depreciation & Insurance
t. 07 3221 8255
m. 0408 749 202
e. pmazoletti@napierblakeley.com

Published in Your Investment Property
July 2018

Treasurer Scott Morrison and Assistant Minister Michael Sukkar said the reforms will help address housing affordability and assist private renters.

The Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 will disallow certain deductions relating to residential investment properties.

Morrison said the changes disallow claims for travel expense deductions and limit plant and equipment depreciation deductions to assets not previously used.

Depreciation will only apply where the depreciating asset was acquired new – this reform is expected to raise $260 million over forward estimates.

The Treasurer said limiting plant and equipment depreciation deductions will remove the existing opportunities for items to be depreciated by multiple owners in excess of their actual value.

For second hand residential properties purchased after May 9, investor will only be able to claim depreciation for plant and equipment assets where the depreciating asset was acquired new for that purpose.

Napier & Blakeley national director of property depreciation and insurance Paul Mazoletti said the changes mean income tax deductions for second hand residential investment properties purchased after May 9 this year were effectively killed off.

On a positive note, Mazoletti said this may influence a boost in residential development as investors may be drawn to the higher deductions they can achieve by acquiring assets in new residential developments that are currently underway or planned into the future.

In another measure, the government will also disallow deductions for travel expenses related to owning a residential investment property.

Currently, travel expenditure for, but not limited to, the inspection or maintenance of rental property owned by a taxpayer, or travel expenditure to collect rent is deductible as it is considered to be incurred in gaining or producing assessable income.

Morrison said this is an integrity measure to address concerns that such deductions are being abused and prevent residential property investors from taking holidays at taxpayers’ expense.

The measure will raise $540 million over the forward estimates.

“Together, the travel and plant and equipment deduction changes will improve the integrity of the tax system and are estimated to generate $800 million in budget revenue over the forward estimates,” he added.

The bill also implements an annual vacancy charge on foreign owners of residential real estate where property is not occupied or genuinely available on the rental market for at least 183 days in a 12 month period.

Foreign owners will have to pay a fee starting from $5,500 for a property purchased for $1 million or less and failure to comply could result in a penalty of $52,500.

The Australia Taxation Office, responsible for residential real estate applications under the foreign investment framework, will administer the vacancy charge.

Published in Australian Property Journal
by Nelson Yap
15 November 2017

Thanks, Dale

A:  Residential investment properties are usually classified into four main types of building: residential houses, townhouses, apartments or units (low-rise and/or high-rise). All these do allow you to obtain different types of capital allowance deductions.

If you are claiming under Division 40 on the above brand-new properties, you are generally entitled to claim the following percentages of the construction costs as a capital allowance:

a. Residential houses: 5–10%
b. Townhouses: 5–15%
c. Units/apartments, low-rise: 5–15%
d. Units/apartments, high-rise: 10–20%

The above percentages are a standard benchmark for fittings and plant and equipment that qualify for a deduction, and do not include any special fittings such as vacuum-ducted systems, electronic blinds, solar panels, high-quality kitchen white goods, etc.

You can also be entitled to a higher-percentage claim for units/apartments (high-rise), as you are allowed to claim your portion of the common property for items such as lifts and basement ventilation.

In addition to the above, if you purchase any new furniture to fit out your investment property, this generally can all be claimed in the first seven years.  With all these properties, in addition to Division 40 Capital Plant allowances you are also entitled to claim under Division 43, which is the construction cost of the property from the date its construction was completed.

The size, location and construction cost of the property will dictate what you can claim as a deduction for capital allowances. In addition, you may be able
to claim your entitlement to common property for the next 40 years.

Another factor to consider when chasing deductions is that if you purchase in a hotel/motel or a short-term accommodation strata-tiled property, the capital works are depreciated at 4% per annum of construction costs and not 2.5%. These investments usually come with a furniture package, which further enhances your total deductions to be claimed.

The above table highlights that if you are looking for maximum depreciation deductions, you should probably buy new and in a high-rise apartment.

Need to know
• All building types allow you to obtain different types of capital allowances deductions.
• You can maximise depreciation deductions by buying a new high-rise apartment.
• New furniture bought for your investment property can generally be claimed in the first seven years.

For more information on this or any other query, please contact:

Paul Mazoletti
National Director of Property Depreciation & Insurance
t. 07 3221 8255
m. 0408 749 202
e. pmazoletti@napierblakeley.com

Published in Your Investment Property
August 2017

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.

I’m not sure about the extent of the renovations you are planning, but no doubt there will be items on the original schedule that will remain post-renovation, items that will be demolished and disposed of, and completely new items that you can depreciate going forward.

An important point for the new depreciation schedule post-renovation is that you must capture all the costs of the renovation in as much detail as you can get from either the builder or the individual trades companies that carry out the work for you, as this will make it a lot easier to create the new schedule.

You should also document other costs, such as design fees, permits and so on, and either add these into the new depreciation schedule or get advice from your accountant as to how these costs may be taken up in your tax return.

“The fees associated with doing two schedules would still be well spent and the deductions generated would pay these fees many times over”

There may also be an opportunity to write off 100% of the balance of the costs associated with items in your original depreciation schedule that were demolished during the renovation, and you should discuss this possibility with your accountant.

In terms of value for money and doing two schedules, in our experience the fees associated with doing two schedules would still be well spent and the deductions generated would pay these fees many times over, so our advice would be to get a schedule done at initial settlement and then get that schedule revised post-renovations.

For more information on this or any other query, please contact:

Paul Mazoletti
National Director of Property Depreciation & Insurance
t. 07 3221 8255
m. 0408 749 202
e. pmazoletti@napierblakeley.com

Published in Your Investment Property
July 2017

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.

Since then, a few of the fundamentals of capital allowances have changed in regard to what you can claim on a property. What remains the same is the question of what provides the biggest deductions, and which properties provide the most value, particularly with regard to new and old properties.  Every situation is different, and certainly newer properties are now looking very attractive, as outlined below.  Deductions under ‘Capital Allowances’ are categorised into two main divisions:

• Division 43 Capital Works (Building)
• Division 40 Capital Allowances (Depreciating Assets – Plant)

Division 43 Capital Works (Building) – Old vs new

Division 43 relates to the calculation of the construction expenditure on both building and structural improvements. To calculate the construction expenditure for building allowance deductions as defined in Section 43-70 ITAA 1997, you require a suitably qualified person (a quantity surveyor) who can certify the cost of constructing a building, in addition to structural improvements such as driveways, fences, etc., as at the date they was installed and completed.  This cost is then apportioned over the tax life of the building (usually 40 years or 2.5% per annum) and can be claimed as a tax deduction.

Second-hand residential deductions commence from when an investment asset was completed.  For example, if in 2017 you purchased a 10-year-old house built in 2007, you need to determine the construction cost as at 2007 and start claiming an allowance per annum for the remaining 30 years, as 10 years have already passed.  This is all you can claim now, in accordance  with the proposed new legislation.   If you recently purchased a new house, you have the next 40 years to claim this allowance per annum.  The construction expenditure and size of the house will determine what you can claim in the year you buy or build, and how far into the future you can claim deductions is dependent on the age of the building. This also applies to low-rise townhouses and high-rise apartments.

Another consideration is that if the property is within a body corporate you will also be able to claim an additional portion of the building’s common property.  This allowance depreciates the same as the building, but is apportioned in accordance with your interest entitlement.  On a second-hand property you are allowed to claim any recent refurbishments and/or extensions as well.  This can sometimes be attractive to buyers as they can claim for something old as well as new.

Example: If you purchased a large house built 10 years ago it may have cost $200,000 to build the structure and so you could claim this at 2.5% or $5,000 per annum for the next 30 years.  If you purchased the same large new house today it may have a building  structure cost of $300,000 and you could therefore claim at 2.5% or $7,500 per annum for the next 40 years. This is an example of how you can get more deductions for a new building than you do for an old building.  If, however, you purchased the large house built 10 years ago and then refurbished/extended it, and these structural costs were an additional $100,000, then you could claim another 2.5%, or $2,500 per annum, for the new works for 40 years, plus the $5,000 for the next 30 years on the original structure.   This would give you a total annual deduction of $7,500 per annum for at least 30 years.

Could items previously considered to be plant and equipment … now simply form part of the building and therefore become deductible as part of the building?

Rules of Depreciation

• Depreciation of fixtures and fittings under Division 40 is always available on any newinvestment property (to be confirmed by legislation shortly)
• You can generally claim 10–20% of a new property’s construction cost under Division 40
• For instance, a new property costing$400,000 to construct could generate $40k–$80k in capital allowance deductions over 10 years
• High-rise new apartments may attract more Division 40 deductions due to more communal amenities (eg lifts, pools)

If the property is within a body corporate,  you will also be able to claim additional deductions from the building’s common property.

Division 40 Capital Allowances (Depreciating Assets – Plant)

This part of the Act covers the principle of ‘decline in value’ of a depreciating asset. The definition of a depreciating asset is a separate topic that can’t be covered here.  However, with the proposed new legislation as of 9 May 2017, Division 40 Capital Allowances (Depreciating Assets – Plant) are available only for the purchase of new properties, although at this stage we are not sure of the exact details until legislation is passed.  But will this mean, for example, that items previously considered to be plant and equipment (and therefore deductible under Division 40) could now simply form part of the building and therefore become deductible as part of the building and included under Division 43 Capital Allowances deductions?

Some examples of depreciating assets are curtains, air conditioning, fire services, lifts, carpets, dishwashers and hot water units.  The effective lives of these items were previously considered to be lower than the general building structure and therefore they could be depreciated more quickly, giving a higher write-off value per annum.  The Australian Tax Handbook 2017, at 2,508 pages, lists all the capital allowances items you can claim and their respective effective lives.  The ‘effective life’ determined by the ATO is its  estimate of how long an item will last before it needs to be replaced, and this therefore determines the percentage depreciation rate.  For instance, the effective life of curtains and drapes is six years, a ceiling fan lives for 20, an electric or gas hot water unit lasts 12 years and a solar hot water system lasts 15 years.

The cost base for depreciating assets was based on the principle of reasonable apportionment that is defined in Subdivision 40-195 of the ITAA 1997. The opening value of any depreciating asset is now the new  purchase price and is not necessarily based on the age of the asset but on its income-producing capability and condition. This part of the Act will apply to all the depreciating assets of income producing buildings.

In simple terms, say a quantity surveyor inspects your property and determines that you have paid $2,000 for the curtains and drapes and these have an effective life of six years, the opening cost for depreciation will then be $2,000 and the taxpayer can claim an annual tax deduction of $333.  There are as yet no details on how these plant and equipment items’ values will need to be treated during a taxpayer’s ownership, but they will likely have to be calculated the items’ written-down values at the time of purchase.  There are also no details as to how costs for post 9 May renovations, refurbishments and extensions to investment assets will be treated or whether an investor can or cannot depreciate these items going forward.  On a positive note, this may influence a boost in  residential development as investors may be drawn to the higher deductions they can achieve by acquiring assets in new residential developments that are currently underway or planned for the future.  In summary, new property may now have the greatest edge  in terms of total deductions available, as shown in the table above.

Need help with depreciation?

Paul Mazoletti and the team at Napier & Blakeley have been helping Australian investors leverage depreciation schedules since 1985.
Ph. 07 3221 8255    www.napierblakeley.com

We have prepared depreciation schedules for all kinds of investors and properties, both residential and non-residential, for over 30 years and there are always so many variations to consider when constructing your depreciation schedule.  There are many factors to consider when determining this, which is why investors should use a quantity surveyor.  Keep in mind that professional fees to engage a suitable quantity surveyor are 100% deductible and will ensure your deductions are calculated accurately and in accordance with current legislation.

Published in Your Investment Property
August 2017

Or…  have you recently refurbished, altered or extended your investment property in the past financial year?

Or…  do you own an investment property but have never claimed depreciation in the past?

Or… own any property including commercial, retail, industrial, residential, pubs, clubs, sporting – we are experts in them all.

If your answer is yes to any of these questions then you may very well be paying too much tax on your income if you don’t claim your depreciation deductions.

Property tax allowances (commonly known as depreciation) provide an opportunity for owners of income producing property to reduce their taxable income, thus reducing the tax payable.  

Napier & Blakeley was the first Australian company to provide specialist property depreciation services with dedicated in-house specialists to identify all available deductions throughout the life cycle of your asset.

Don’t waste any more of your money, request a quote today or contact us to get advice on how a depreciation schedule can strengthen the return on your investment putting more money in your pocket.

Please contact any of the people below for further assistance :

BRISBANE
Paul Mazoletti
National Director
o.  07 3221 8255
m. 0408 749 202
e.  pmazoletti@napierblakeley.com

BRISBANE
Kath Hemphill
National Residential Manager
o.  1300 730 382
m. 0409 722 709
e.  khemphill@napierblakeley.com

MELBOURNE
John Mathew
o.  03 9915 6300
m. 0414 559 326
e.  jmathew@napierblakeley.com

SYDNEY
Peter Osborn
o.  02 9299 1899
m. 0439 765 571
e.  posborn@napierblakeley.com

SYDNEY
Peter Guerra
o.  02 9299 1899
m. 0423 567 159
e.  pguerra@napierblakeley.com

For 32 years and counting Napier & Blakeley have been providing the following services to the property industry:

• Property Acquisition & Disposal Technical Due Diligence
• Property Development Due Diligence
• Quantity Surveying
• Capital Expenditure Forecasting
• Make Good Reporting
• Energy Management
• Development Monitoring
• Property Tax Depreciation

Please contact any of the people below for more information or assistance:

SYDNEY
Alastair Walker
Managing Director
o.  02 9299 1899
m. 0419 503 289
e.  awalker@napierblakeley.com

MELBOURNE
Craig Smith
Director
o.  03 9915 6300
m. 0407 371 664
e.  csmith@napierblakeley.com

BRISBANE
Paul Mazoletti
National Director
o.  07 3221 8255
m. 0408 749 202
e.  pmazoletti@napierblakeley.com

PERTH
Graham Rigby
Senior Associate
o.  08 9489 4895
m. 0419 847 998
e.  grigby@napierblakeley.com