Business Daily Media

Three common depreciation mistakes that could cost property investors thousands

  • Written by BMT Tax Depreciation



Investment property owners make three costly mistakes when it comes to maximising their tax return according to BMT Tax Depreciation, Australia’s leading provider of depreciation schedules.

Property investors can claim sizable tax deductions for the natural wear and tear that occurs to a building and its fixtures and fittings over time and for renovations. These deductions are known as property depreciation.

Specialist quantity surveyors are one of the few professionals recognised as having the skills to estimate construction costs for depreciation purposes,  yet many people fail to engage one and miss out on claiming valuable dollars back at tax time.

Expert quantity surveyor and CEO at BMT Tax Depreciation, Bradley Beer, has revealed the three most common depreciation errors he sees.

Getting the depreciation category wrong

There are two types of depreciation deductions: capital works (Division 43) and plant and equipment (Division 40). According to Bradley Beer, “it’s often not immediately clear which category an item belongs to, and in some cases an asset can be split between both.”

Capital works are claimed for the wear and tear of a building’s structure and the items permanently fixed to the property, such as doors and windows. Capital works are typically depreciated at an annual rate of 2.5 per cent over 40 years.

Plant and equipment items can be easily removed, and include things like blinds, hot water systems and furniture. The condition, quality and effective life will determine the allowances available for a plant and equipment asset.

“Many investors mistake floating timber flooring as permanently fixed to the building and therefore a capital works deduction when it’s actually removable, making it a plant and equipment deduction,” said Bradley Beer. “This could mean the difference between $250 and over $1,300 in first year deductions.”

A ducted air conditioning system is another example, where the unit itself is considered plant and equipment while the ducting for the same unit falls under capital works.

“Claiming an entire ducted air conditioning unit under Division 43 would result in substantially higher but incorrect first year deductions, which would come under ATO scrutiny,” said Bradley Beer.

Assuming depreciation on older properties can’t be claimed

Research proves that new properties hold the highest depreciation deductions, but many people mistakenly think that depreciation can’t be claimed on older properties.

Legislation introduced in late 2017 means that depreciation of second-hand plant and equipment assets can no longer be claimed. Yet capital works deductions remain unaffected and make up the bulk of a depreciation claim on an investment property, regardless of whether it is new or second hand.

“Second-hand property owners can still claim depreciation on all qualifying capital works deductions that, on average, make up 85-90 per cent of the total claim. They can also claim all new plant and equipment assets they purchase for the property,” said Bradley Beer.

“During the 2019-2020 financial year, we found an average depreciation claim of more than $8,300 for our clients’ properties.”

Overlooking deductions

Many depreciation deductions are easily missed by the untrained eye, especially on assets that have been installed by others. Substantial renovations where all, or substantially all, of a building is removed or replaced can hold significant deductions – even when completed by a previous owner.

“Some examples of substantial renovations include replacing foundations of the building, walls, floors, the roof or staircases,” said Bradley Beer. “These renovations can hold tens of thousands of dollars in deductions for the new owner.”

When an investor purchases a second-hand property immediately after a substantial renovation, the 2017 legislation changes don’t apply.

“This means the new owner can claim depreciation on all new plant and equipment assets and the capital works,” said Bradley Beer.

“Property investors should look to contact a specialist quantity surveyor for advice on what deductions are available for their individual circumstances,” concluded Bradley Beer.

Investors can request a free tax depreciation estimate from BMT at  bmtqs.com.au/estimate to better understand the deductions that may be available for their property.

Business Daily Media Business Development

Turning resolutions into short-term survival and long-term growth tactics

Few Australian industries have been harder hit by the pandemic than hospitality. After two years of lockdowns, social distancing restrictions, staff shortages and supply chain woes, 2022...

Paul Hadida, General Manager, APAC at SevenRooms - avatar Paul Hadida, General Manager, APAC at SevenRooms

The ‘baby bust’ is set to kick-off an AI-boom

The Australian workforce is set to see almost an entire generation retire within the next 15 years. Firstlinks predicts that there will be more baby boomers exiting the workforce than 15-y...

Andy Mellor Regional Vice President of Australia at Kofax. - avatar Andy Mellor Regional Vice President of Australia at Kofax.

How Microsoft's Activision Blizzard takeover will drive metaverse gaming into the mass market

Ready Player 1,000,000,0001?Sergey NivensMicrosoft was positioning itself as one of the pioneers of the metaverse even before its US$75 billion deal to buy online gaming giant Activision Bli...

Theo Tzanidis, Senior Lecturer in Digital Marketing, University of the West of Scotland - avatar Theo Tzanidis, Senior Lecturer in Digital Marketing, University of the West of Scotland

Some of the super-rich want to pay more tax – but society cannot afford to depend on them

Shutterstock/PilgujDemands for the super wealthy to pay more taxes are not new. But they don’t usually come from billionaires or millionaires.Yet on January 19 2022, around 100 of the ...

Peter Bloom, Professor of Management, University of Essex - avatar Peter Bloom, Professor of Management, University of Essex

A killer app for the metaverse? Fill it with AI avatars of ourselves – so we don't need to go there

Ready avatar one?Athitat ShinagowinBig numbers coming. Microsoft’s US$75 billion (£55 billion) acquisition of Activision Blizzard has landed – true to Call of Duty vernacul...

Alex Connock, Fellow at Said Business School, University of Oxford, University of Oxford - avatar Alex Connock, Fellow at Said Business School, University of Oxford, University of Oxford

Labelling Equipment; Prayers Have Been Heard and, Answered

If you are an instrumental part of a management team for a business that now requires labels for their products or goods, then traditionally you’d have had one of three choices, if the...

Business Daily Media - avatar Business Daily Media



NewsServices.com

Content & Technology Connecting Global Audiences

More Information - Less Opinion