Even if a property is purchased towards the end of a financial year, a tax depreciation specialist can provide valuable deductions in this short time.
To maximise the depreciation benefit of a newly purchased investment property, owners should obtain a property depreciation report leading up to settlement.
If a property has been owned and rented for only a short period, investors often postpone obtaining a depreciation schedule until the next year. However, there are ways in which partial year deductions can be maximised, resulting in extra cash for the owner!
Usually, the total depreciation available in the first financial year is adjusted according to the portion of the year the property is owned. For example, if a property is owned for six months, then 50% of the depreciation could become available. However, specialist quantity surveyors can use legislative tools to make partial year claims beneficial to property owners, regardless of the time a property is owned and rented.
Immediate write-off is one tool used. Any item added to a property, costing less than $300, can be immediately written off within the first year. This is regardless of how many days the property is owned in that year.
Low-value pooling can also be used to maximise claims over a short period of time. Low-value pooling applies to items in an investment property that are worth less than $1,000. Placing items in a low-value pool allows the owner to accelerate the rate of depreciation, increasing deductions earlier.
A high quality depreciation report should include a partial year claim based on the time the property is rented.
The following example shows how the partial year portion of a BMT Tax Depreciation report can maximise a property owner’s deductions.
A house purchased for $550,000 is rented starting from June 2nd. The table below shows a summary of the deductions available to the owners after renting the property for only twenty-nine days of the financial year.
Including the capital works allowance and all plant and equipment deductions, the owner claimed back $4,852 for the first financial year. Even though the property was only owned and rented for twenty-nine days, substantial deductions were found. In a BMT report, the partial year claim is listed in a separate column, making the process simple for accountants.
The plant and equipment deductions for the first twenty-nine days totalled $4,082. By using the immediate write-off allowance for items costing less than $300, BMT was able to find $1,288 for this property owner. From low-value pooled items, the owner was able to claim back $2,274. The remaining items were depreciated using their effective lives and scaled down based upon the small portion of the first financial year. They account for the remaining $520 in deductions.
This example shows that even when owning and renting a property for a few weeks of the financial year, claiming depreciation makes a significant difference to the owner’s tax deductions. By utilising the legislation available through the Australian Taxation Office, depreciation claims can be truly maximised for the first partial year. Even if a property is purchased just before the end of the financial year, owners should seek the services of a specialist quantity surveyor to accelerate the depreciation benefits.
Article Provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Managing Director of BMT Tax Depreciation. Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia wide service.