An in-ground pool can be a luxurious addition to your investment property, and it’s important to understand how to claim depreciation on it to maximise your tax benefits. Under Division 43 of the ITAA 1997, an in-ground pool is considered part of the capital works, meaning you can claim depreciation on its construction cost over time. This is often misunderstood, as many investors confuse it with plant and equipment assets covered under Division 40.
Under Division 43, you can claim a percentage of the pool's construction costs each year, typically over a 40-year period. This means if your pool cost $40,000 to build, you could potentially claim a portion of that each year as a tax deduction. It's essential to note that only the construction costs are eligible, not the land or any landscaping around it.
To see how this plays out, consider a 2015-built 4-bedroom house in Melbourne's eastern suburbs with an in-ground pool costing $50,000 to construct. Under Division 43, you could claim a deduction on the construction cost. At a 2.5% annual rate, this results in a $1,250 deduction per year. For an investor in the 37% tax bracket, this depreciation could reduce your annual tax bill by $462.50.
In our experience reviewing thousands of properties across Australia, many investors overlook the potential tax savings from depreciating their in-ground pool. It's not uncommon to see investors mistakenly believe that pools don't qualify for depreciation or confuse the rules with those for plant and equipment. Additionally, we find that investors often fail to properly document the construction costs, which can lead to missed deductions.
The answer can differ depending on your situation. If the property was purchased after 7:30 pm AEST on 9 May 2017, and the pool was included in the purchase of a second-hand residential property, the pool remains depreciable under Division 43. However, if the pool is considered part of a new build or significant renovation, it is fully claimable. For properties owned by SMSFs, specific rules may apply, and it's advisable to seek tailored advice.
Given the complexity of tax legislation and the potential for variations based on individual circumstances, engaging a Chartered Quantity Surveyor and an accountant is crucial. They can ensure that all eligible deductions are claimed correctly and that your tax strategy is optimised for your situation.