When you supply furniture to a rental property, you are entitled to claim depreciation on these items under Division 40 of the ITAA 1997. This covers plant and equipment, which includes furnishings like sofas, beds, and dining tables. Depreciation allows you to write off the cost of these items over their effective life as determined by the ATO, reducing your taxable income.
A common misconception is that all furniture can be depreciated at the same rate. However, each type of furniture has a different effective life, which impacts the depreciation rate. For example, a dining table might have a different effective life compared to a sofa. Understanding these distinctions is crucial for accurate claims.
To see how this plays out, take a practical example of a landlord who owns a two-bedroom apartment in Southbank, Melbourne. They purchase new furniture for the living room and bedrooms, spending a total of $15,000. Items include a sofa, dining table, and beds. Assuming the effective life of these assets is between 5 to 10 years, the first-year depreciation claim could be around $3,000. At a 37% marginal tax rate, this reduces the landlord’s tax bill by approximately $1,110.
In our experience reviewing thousands of properties across Australia, we find that landlords often overlook the importance of maintaining detailed purchase records of furniture. Without these records, calculating depreciation accurately becomes challenging. Additionally, many landlords fail to reassess and update their depreciation schedules when new furniture is added or old items are disposed of, leading to missed tax benefits.
The answer can differ depending on your situation. If you purchased the property after 9 May 2017, the rules about claiming depreciation on second-hand furniture are stricter. For properties held in an SMSF, additional compliance requirements may apply. Commercial properties have different rules compared to residential ones, and partial-year ownership can affect your depreciation calculations.
Given the complexity of depreciation claims and the potential for significant tax savings, consulting with a Chartered Quantity Surveyor and your accountant is essential. They can ensure all claims are compliant with current legislation and optimise your tax position.