Missing depreciation claims on your investment property can cost you significant tax savings. Fortunately, the Australian Taxation Office (ATO) allows you to amend your tax returns to include overlooked depreciation deductions. Generally, you have up to two years from the date of your original notice of assessment to make these amendments. This period can extend to four years for some taxpayers, such as small business entities.
Under the ATO's guidelines, depreciation falls under Division 40 of ITAA 1997 for plant and equipment and Division 43 for capital works. If you have missed these deductions, you can lodge an amendment request to include them, potentially recovering tax benefits you didn't initially claim. It's important to note that this process involves recalculating your taxable income for the relevant years and submitting the revised figures to the ATO.
To see how this plays out, consider a practical example. Imagine you own a 2009-built 2-bedroom apartment in Fortitude Valley, Brisbane, purchased for $700,000. You initially overlooked claiming depreciation on assets like air conditioning and carpets. By amending your past returns, you could include depreciation of $5,000 per annum. At a 37% marginal tax rate, this translates to a tax refund of $1,850 per year, significantly boosting your cash flow.
In our experience reviewing thousands of properties across Australia, many investors miss substantial deductions due to a lack of awareness or misunderstanding of eligible items. Often, they overlook assets like common area facilities in apartment buildings or fail to update their schedules after renovations. Additionally, some investors mistakenly believe that once a tax return is lodged, it cannot be changed, missing out on valuable amendments.
The answer can differ depending on your situation. For instance, if you acquired a second-hand property after 7:30 pm AEST on 9 May 2017, you cannot claim Division 40 depreciation on previously used plant and equipment. However, Division 43 capital works deductions remain unaffected. Similarly, if your property is held in a Self-Managed Super Fund (SMSF), different rules may apply regarding amendments and asset depreciation.
Given the complexities involved, it's crucial to seek professional advice. A Chartered Quantity Surveyor can provide a detailed depreciation schedule, ensuring all eligible deductions are captured. Coupled with your accountant's expertise, you can effectively amend your returns and optimise your tax position.
Here are practical steps you can take immediately: