Your Tax Depreciation Questions Answered

Everything you need to know about tax depreciation.

Your Tax Depreciation Questions Answered

What is Depreciation?

Depreciation is the loss in value of an asset or building over a period of time due to wear and tear, physical deterioration and age.

Why do I need a Tax Depreciation Schedule?

A tax depreciation schedule reduces your tax liability on assessable income.
The tax depreciation schedule allows you to claim back money that would otherwise go to the taxman.

What is a Tax Depreciation Schedule?

A Tax Depreciation Schedule is a report, which outlines the depreciation allowances that an investor is entitled to claim.

There are two types of deductions. Division 43 Capital Works Allowances and Division 40 Plant & Equipment Allowances.

Under Division 43 Capital Works Allowances, a flat rate of depreciation either 2.5% or 4% is applied to the building and any structural improvements depending upon the date of construction.

Construction Date	Depreciation Rate	Time Period
July 1985 – September 1987	4.0%	25 Years
September 1987 onwards	2.5%	40 Years

Where actual costs are not known a quantity surveyor will estimate the costs for the building/structural improvements as at the date it was constructed. The construction costs include fees for preliminary items such as design fees, engineering and building approval costs.

Strata title unit owners are able to claim a percentage of the common area improvements based upon the relevant lot entitlements.

Under Division 40 Plant & Equipment Allowances, certain items of plant & equipment can be depreciated at an accelerated rate. Examples of such items include carpet, air conditioning, curtains, appliances, hot water systems and a series of other items as listed by the Australian Tax Office.

The eligible plant & equipment items are costed as at the date of purchase having regard to the market value of the item together with its new replacement cost and its relevant age.

For the depreciation allowances relating to the plant & equipment articles both the diminishing value and prime cost depreciation methods are used. Which depreciation method to use will depend upon your specific circumstances. Once the method of depreciation is chosen, you can’t alternate between methods and it is recommended this be discussed with your accountant or financial adviser.

Eligible plant & equipment items with a cost of $300 or less qualify for an immediate full deduction and Low Value Pooling is used for assets costing $1,000 or less.

Owners of second hand residential properties purchased after 9 May 2017 are not able to claim depreciation on the existing plant and equipment assets at the time of purchase. New plant and equipment items purchased and installed after settlement will be eligible.

On what type of property can a Tax Depreciation Schedule be undertaken?

A tax depreciation schedule can be undertaken on any type of investment property new or old.

If your property is older, you are able to claim depreciation on refurbishment works even if you haven’t done them.

How much Tax Depreciation can I claim?

How much depreciation you can claim depends upon the date of purchase, the age, type and size of the property, the fixtures & fittings, plant & equipment items and the ground improvements.

Unit owners are able to claim depreciation on the unit together with a proportion of the common area improvements based on the lot entitlement.

Annual tax deductible depreciation allowances for investment properties can typically be in the order of:

New standard house – $6,000 – $14,000
Second hand standard house – $2,000 to $7,000*
Prestige house – $20,000 plus*
Townhouse unit complex – $2,000 to $12,000*
Low-rise unit complex – $2,000 to $12,000*
High-rise unit complex – $2,000 to $15,000*

*Note: These figures are indicative only and can vary depending upon the purchase date, the size, age and quality of the property and the value of the plant and equipment.

Who should prepare the Tax Depreciation Schedule?

In accordance with Tax Ruling 97/25, The Australian Taxation Office advise Quantity Surveyors are appropriately qualified to undertake a tax depreciation schedule.

It is important that the Quantity Surveyor is a member of the Australian Institute of Quantity Surveyors and the company is a registered tax agent.

Caseco Quantity Surveyors prove a cost efficient service applying the latest Australian Taxation Office rulings and interpretations to maximise your deductions. Our quantity surveyors have over 20 years’ experience and are individual Associate members of the AIQS. Caseco Quantity Surveyors is a registered tax agent.

When should I get a Tax Depreciation Schedule done?

A tax depreciation schedule can be undertaken any time after the property settlement date/ handover date or from the date the property becomes available for lease and before the lodgement of your next year’s tax return.

What happens if I haven’t been claiming depreciation?

If you haven’t been claiming depreciation, we are able to back date the tax depreciation schedule to the date of settlement/date the property became available for lease.

You should then consult with your accountant who will be able to amend your previous 2 years tax returns to claim the depreciation.

Can I claim renovation works on my property even if I didn’t do them?

Yes you can claim the depreciation on the capital works items including items such as new roof, kitchen cupboards, vanity, tiling, painting etc.

See changes to Depreciation Plant and Equipment for details on plant and equipment items

Is it worthwhile claiming depreciation on older properties?

Yes definitely. It doesn’t matter how old a property is, there will usually be tax depreciation deductions you can claim. These may include depreciation on building improvements and depreciation on plant and equipment items associated with the property.

In Caseco Quantity Surveyors experience, there are generally significant deductions available that more than cover the cost of the report.

Caseco Quantity Surveyors also guarantee that if your depreciation allowance, in the first full year of the schedule, is less than the fee, then the tax depreciation schedule is yours free of charge.

Can I use a sample estimate that was given to me by the developer in my tax return?

The simple answer is NO.

A sample estimate is generally used as a marketing tool to show what an investor might expect to be able to claim if the property was purchased. Generally, the sample estimate isn’t specific to your property and may not contain or include all depreciable items that would be found if a full depreciation schedule was completed.

Should I get a tax depreciation schedule that is valid for a 10 or 40 year period?

This is a personal preference but take into consideration that you will be undertaking refurbishment works and replacing items of plant and equipment over a 10 year period, which means that the report would have to be updated.

What do I have to do at tax time each year?

Once you have your tax depreciation schedule all you have to do is take it to your accountant, decide on which depreciation method to use either diminishing value or prime cost and then lodge it with your tax return.

The tax depreciation schedule is valid for a 10 or 40 year period. Therefore, there is nothing further for you to do.

If in the future, you make changes to your investment property, including refurbishment works, structural improvements, add or remove any items of plant and equipment, we recommend that you contact Caseco Quantity Surveyors to amend your schedule accordingly.

Professional fees?

The fees associated with obtaining a tax depreciation schedule are 100% tax deductible.

Caseco Quantity Surveyors also guarantee that if your depreciation allowance, in the first full year of the schedule, is less than the fee, then the tax depreciation schedule is yours free of charge.