Investing in a brand-new property in Australia comes with various financial benefits, one of which is the ability to claim property depreciation.

A depreciation schedule is a critical tool for property investors, allowing them to maximise their tax deductions and improve their overall return on investment.

Understanding how depreciation works, what qualifies for depreciation, and how to effectively utilise a depreciation schedule can significantly impact your financial outcomes.

What is a Depreciation Schedule?

A depreciation schedule is a detailed report prepared by a qualified quantity surveyor that outlines the decline in value of a property’s assets over time. In Australia, property investors can claim depreciation as a tax deduction under two categories: capital works deductions (Division 43) and plant and equipment depreciation (Division 40).

How Depreciation Works

1. Capital Works Deductions (Division 43): This refers to the structural and fixed items of a property, such as the building itself, driveways, and built-in fixtures. For properties built after September 15, 1987, you can claim a deduction of 2.5% of the construction cost annually over 40 years.

2. Plant and Equipment Depreciation (Division 40): This covers the removable or mechanical assets within the property, such as appliances, carpets, and furniture. These items can be depreciated based on their effective life as determined by the Australian Taxation Office (ATO).

What Are Fixtures and Fittings?

Fixtures and fittings are the assets within a property that are not part of the building structure but are considered part of the property for depreciation purposes. Examples include:

• Appliances: Ovens, dishwashers, air conditioning units.
• Floor Coverings: Carpets, vinyl flooring.
• Window Coverings: Blinds, curtains.
• Furniture: If the property is furnished.

These items typically have shorter effective lives than the building structure, allowing for higher depreciation rates and quicker tax deductions.

Why You Get More Depreciation with More Bathrooms

The more bathrooms a property has, the higher the number of fixtures and fittings eligible for depreciation. Each bathroom contains items such as sinks, toilets, bathtubs, and vanity units, all of which can be depreciated. More bathrooms mean more assets to depreciate, leading to higher total depreciation deductions. This can significantly boost the tax benefits available to property investors.

How a Depreciation Schedule Can Help You Save Tax

A well-prepared depreciation schedule can help property investors save a substantial amount in taxes. Here’s how:

1. Maximising Deductions: A comprehensive depreciation schedule ensures that all eligible assets are included, maximising the tax deductions you can claim each year.

2. Improved Cash Flow: By claiming depreciation, investors can reduce their taxable income, resulting in lower tax liabilities. This improves cash flow, allowing investors to reinvest in their property or other ventures.

3. Long-Term Savings: Depreciation deductions can be claimed for up to 40 years, providing long-term tax savings. This can make a significant difference in the overall profitability of an investment property.

Claiming Depreciation on Second-Hand Property

Investors can also claim depreciation on second-hand properties, though there are some differences compared to new properties. Here’s what you need to know:

1. Plant and Equipment Restrictions: For properties purchased after May 9, 2017, investors can only claim depreciation on plant and equipment items that they purchase themselves. They cannot claim depreciation on existing plant and equipment assets that were part of the property at the time of purchase.

2. Capital Works Deductions: Investors can still claim capital works deductions on the structural elements of the property, provided it was built after September 15, 1987. The deduction rate remains at 2.5% of the construction cost per year.

3. Engaging a Quantity Surveyor: A qualified quantity surveyor can assess the property and compile a depreciation schedule that includes eligible capital works deductions and any new plant and equipment purchased by the investor.

Getting Your Depreciation Schedule

To get the most accurate and beneficial depreciation schedule, it is essential to engage a qualified quantity surveyor. These professionals have the expertise to assess your property and compile a detailed report that meets ATO requirements.

These type of services and reports can cost a lot of money but at PB Property we have managed to get a super deal for our readers and investors and negotiating a 50% discount for you. Just use this link to order yours.

Conclusion

Investing in a brand-new property in Australia presents a valuable opportunity to capitalise on property depreciation.

By understanding the importance of a depreciation schedule and how to utilise it effectively, property investors can enhance their tax savings, improve cash flow, and increase the overall return on their investment.

Engaging a qualified quantity surveyor to prepare your depreciation schedule is a critical step in maximising these benefits.

At PB Property we assist you with all these important steps to maximise your property investment.