Heritage-listed properties, while often carrying historical significance and aesthetic appeal, can still be subject to depreciation claims under Australian tax law. The key factor lies in understanding how the ATO's Division 43 of ITAA 1997 applies to these properties, covering capital works deductions on the building structure and any eligible renovations.
Under Division 43, you are entitled to claim depreciation on capital works for buildings constructed after 16 September 1987. For heritage-listed properties, this often includes more recent renovations or extensions that meet these criteria. A common misconception is that the heritage status of a property completely precludes it from any depreciation benefits. However, it's the date and nature of construction or renovation work that dictates eligibility, not the heritage listing itself.
To see how this plays out, consider a heritage-listed terrace house in Paddington, Sydney. Originally constructed in the 1900s, it underwent significant renovations in 2010 to restore and modernise the interiors while preserving its façade. The renovation costs amounted to $200,000. Under Division 43, these renovations can be depreciated at 2.5% per annum, providing an annual deduction of $5,000. At a 37% marginal tax rate, this results in a tax saving of $1,850 each year.
In our experience reviewing thousands of properties across Australia, investors often overlook the depreciation potential of heritage-listed buildings due to their historical nature. Many are unaware that recent renovations, even within a heritage framework, can be depreciated. Additionally, investors frequently miss out on claiming eligible plant and equipment that might still be applicable if purchased new or installed as part of renovations.
The answer can differ depending on your situation. For instance, if your heritage property underwent renovations after 16 September 1987, you can claim under Division 43. However, if it's a second-hand residential property acquired after 9 May 2017, you cannot claim Division 40 depreciation on previously used plant and equipment. Properties held within a self-managed super fund (SMSF) or those with joint ownership structures may also have different implications, so professional advice is crucial.
When it comes to heritage-listed properties, the nuances of depreciation claims can be intricate. Engaging both a Chartered Quantity Surveyor and an accountant ensures you maximise your entitlements while remaining compliant with the ATO. QS professionals can provide a detailed depreciation schedule, identifying eligible deductions specific to your property's history and renovations.