Depreciating common areas in a strata building can significantly impact your tax deductions, yet it remains a grey area for many investors. The Australian Taxation Office (ATO) allows for depreciation claims on these areas, provided specific conditions are met.
Under Division 43 of ITAA 1997, you can claim capital works deductions on the building's structural components, including shared elements like stairwells, roofs, and elevators. These deductions are typically spread over 40 years at 2.5% annually, provided the construction occurred after 16 September 1987.
For plant and equipment items under Division 40, such as lighting, security systems, and gym equipment, the rules are more nuanced. The 2017 budget changes mean that investors who acquired second-hand residential properties after 9 May 2017 cannot claim depreciation on previously used plant and equipment. However, new equipment installed in common areas remains eligible.
To see how this plays out, consider a 2015-built apartment complex in Melbourne with a modern gym, pool, and shared BBQ facilities. If you own a unit in this building, you can claim depreciation on your share of the common areas. For instance, let's assume the gym equipment has an effective life of 10 years and a cost of $50,000. If your share is 1%, your annual depreciation claim for the gym equipment alone could be $500, reducing your taxable income by $185 at a 37% marginal tax rate.
In our experience reviewing thousands of properties across Australia, many investors overlook the potential tax savings from common areas. They often assume depreciation only applies to their individual unit's assets, missing out on significant deductions. Another frequent mistake is failing to update depreciation schedules when new equipment is installed in common areas, which can happen when strata committees upgrade facilities.
The answer can differ depending on your situation. For instance, if your property is part of a commercial strata complex, the depreciation rules differ slightly, and the plant and equipment may have longer effective lives. Similarly, if you purchased a unit before 9 May 2017, you might still be able to claim depreciation on second-hand assets in the common areas.
Given the complexity of these rules, obtaining professional advice is crucial. A Chartered Quantity Surveyor can accurately assess and document the depreciation available, ensuring compliance with ATO requirements. Coupled with guidance from your accountant, you can maximise your tax benefits and avoid costly errors.
Here are the immediate steps you can take: