Tax Q&A: Your Questions on Depreciation Returns, Answered
Q: I am looking at buying my first investment property this year, and a friend has advised me to purchase a unit instead of a house for better depreciation benefits. I don’t quite understand how this works: houses are bigger, therefore shouldn’t the depreciation returns be higher? I would love some advice before I invest, as I’m aiming to keep my cash flow position as strong as possible (ideally I want a neutral or positively geared investment).
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% Continue reading
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
