A tax depreciation schedule is an essential tool for any property investor in Australia. It provides a detailed report of the depreciation deductions available on an investment property, ensuring you claim the maximum allowable deductions under the Income Tax Assessment Act 1997. Without this schedule, many investors inadvertently leave money on the table, missing out on thousands of dollars in tax savings every year.
What is a Tax Depreciation Schedule?
A tax depreciation schedule is a document prepared by a qualified Quantity Surveyor that outlines the depreciation deductions available for a property. It covers both Division 40 (plant and equipment) and Division 43 (capital works) deductions. Division 40 relates to the decline in value of depreciating assets like appliances and fittings, while Division 43 pertains to deductions for the structural elements of the building, such as walls and floors.
A common misconception is that only new properties qualify for depreciation. However, even older properties have potential deductions, especially under Division 43, which can apply to buildings constructed after 16 September 1987. It's important to note that the 2017 budget changes affected Division 40 claims for second-hand residential properties, leading many to incorrectly assume that depreciation is no longer available.
How This Works in Practice
Consider a 2015-built 2-bedroom apartment in Southbank, Melbourne, purchased for $800,000. A tax depreciation schedule reveals deductions of $10,000 for Division 40 and $5,000 for Division 43 in the first year. At a 37% marginal tax rate, this equates to a tax saving of $5,550. Without a depreciation schedule, these savings would remain unclaimed.
Professional Insight
In our experience, many investors underestimate the value of a tax depreciation schedule. One thing we frequently see is investors believing their accountant will automatically claim all possible deductions. However, without a detailed schedule, accountants often lack the necessary information. Another common oversight is not updating the schedule after renovations, missing out on additional deductions. What most investors don't realise is that even properties built before 1987 can have significant Division 43 deductions if renovations have been undertaken.
When Does the Answer Change?
- Properties purchased post-9 May 2017: Investors cannot claim Division 40 deductions on previously used plant and equipment.
- Pre-1987 buildings: Limited Division 43 deductions unless renovations have been made.
- Properties held in an SMSF: Different tax treatment may apply, necessitating a tailored schedule.
- Commercial properties: Often have more extensive Division 40 deductions due to asset types.
When Should You Seek Professional Advice?
Engage a Chartered Quantity Surveyor when considering a tax depreciation schedule, especially if your property has undergone renovations or is part of a commercial portfolio. An accountant should also be consulted to integrate the schedule into your overall tax strategy, ensuring compliance with current tax laws.