An Australian Investors Guide To Tax Depreciation

It pays to get ahead in life. To build your wealth, prepare for retirement, leave a legacy for your children and live comfortably. 

There are many ways to go about this, from investing in stocks to superannuation or term deposits. And one way that has proven itself time and time again is investing in real estate. 

But if you’re a property investor, do you know everything you need to know about Brisbane tax depreciation?

In this informative article, we’re going to share some tips about tax depreciation as it relates to property investment.

What is Depreciation?

First, an explainer is needed. Depreciation, in tax terms, means a reduction in the value of an asset over its lifetime. For instance, a new car is a great example of a depreciating asset – it loses value the minute you drive it off the lot. 

But property usually appreciates, you say. This is true. But claiming depreciation on your investment property against your other taxable income, say from employment or your business, is a good move for tax purposes.

How Do I Do It?

To begin with, you should engage a qualified surveyor to inspect your home and prepare a report. You then take this report to your accountant. 

Why can’t you just use a value estimate, like the ones you find online? Because the law says that if your property was built after 1985, only a surveyor can estimate the construction costs. 

You need the technical expertise of a surveyor to do this.

What If I’ve Renovated?

You can still claim depreciation in this case, but you need to know how much your renovations cost. So always keep copies of all contracts, invoices and expenses incurred in the course of your renovations.

What Are The Expenses?

The cost of preparing a tax depreciation schedule will vary due to different factors. These may include the type of property you’ve purchased as an investment (residential, commercial or industrial) as well as its size and location.

Also, the surveyor fees are completely tax-deductible. 

How Much Will I Save at Tax time?

Again, it will vary based on individual circumstances and the property. There are some pretty decent depreciation calculators online, so a quick Google can help you estimate. 

It’s not worth paying for an estimate, only for the surveyors’ report.

What Can I Claim?

Let’s say you’ve built your investment property new, on land you acquired. In this case, you can claim the cost of building the property. But, there’s a catch. It gets spread over 40 years. This is the duration the ATO claims a building lasts before it needs replacing. So, for a $400, 000 building, you can claim $10,000 a year over that 40 years.

You can also claim depreciating assets that you have installed in the property. This may include light fittings, ovens and cooktops, carpets, air conditioners, bins, range hoods and other fixtures and fittings. 

Again, these get claimed throughout their lifetime. So carpets will last ten or so years, air conditioners 10-15 – you get the idea.

Tax Claim Conclusions

In this article, we’ve explained all about depreciation as it relates to investment properties. You’ve learnt how to have your property valued, as well as what you can claim as tax depreciation. Again, it’s hard to estimate how much you will save at tax time, but investing in property and using depreciation schedules can be an effective way to offset your other taxable income. So, now you’re informed and ready for tax time in a few months.