Your Key to Better Profits at Tax Time

July 4, 2013 Sam Saggers

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how to improve profitsAs any savvy business owner knows, it’s important to keep track of your expenses, not just for the day to day accounts receivable/accounts payable requirements, but for that event known as “tax day!”

As a property investor, one particular item which can make that “oh so wonderful” day a bit easier is a depreciation schedule.

What is a depreciation schedule?

Time wears not only on ourselves, but on our properties, however unlike our property investments, we can’t claim depreciation on ourselves. How unfortunate. A depreciation schedule is a tool that your tax accountant will use to determine the costs you’ve incurred simply by owning your investment property.

The two types of allowances include:

Capital Works

This allowance includes the structure itself, as well as items which are attached and non removable.
Examples: door and window fittings, the driveway, clotheslines, built in kitchen cupboards, etc.

Plant and Equipment

This covers items that are removable parts of the property.
Examples: carpets, blinds, air condition units, hot water systems, solar panels, etc.

So why should I pay for a depreciation schedule and how much will it cost?

You purchased your investment property to make money, right? A depreciation schedule will reduce your tax liability by reducing your taxable income, which can really boost your savings! There are no “set fees” for a depreciation schedule and prices can vary, so it’s a good idea to get a quote from a registered tax agent.

A number of criteria are used to determine cost including, for example:

  • Property type
  • Property location
  • Size

Don’t forget – even the fees you’re charged are 100% tax deductible!

Does my property have to be new?

Obviously, the newer your property the greater your depreciation allowances. If, however, your investment property was constructed after July, 1985, you’ll still be able to claim depreciation on both categories of depreciation. If built before this date, you can claim depreciation on plant and equipment only. It’s still worth the effort.

Oops…I Didn’t Claim Depreciation!

No worries. If you forgot to claim depreciation last year – even the year before that, you can have your accountant amend your returns to include depreciation!

What About Renovations?

As a savvy property investor, you’ve kept copy of the cost of renovations, which can be used to determine available depreciation. If the property was renovated at the time you bought it and you have no record of the costings, a quantity surveyor can estimate them for you.

Please note: If your investment property was built after 1985, your accountant cannot prepare your depreciation schedule. Nor can your real estate agent, property manager or even a valuer. You must obtain this report from a qualified quantity surveyor that is a registered tax agent.

Will A Property Inspection Be Required?

The quantity surveyor is required – by the ATO – to perform an on site inspection. This is to be certain that all depreciable items are documented. This can be helpful, as you don’t want any allowable deductions to slip through the cracks. Besides, should you be audited, you’ll have all the evidence you need that your deductions were legal!

Curious about what your depreciation might be? Take a look at this calculator to get a rough estimate of what you could be able to claim.

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