Most investors understand the importance of a depreciation schedule, but many are unsure about how often it should be updated. A depreciation schedule is not a 'set and forget' document. It should be reviewed and potentially updated whenever there's a significant change to your property, such as renovations, new asset purchases, or changes in legislation.
When to Update Your Depreciation Schedule
Updating your depreciation schedule is crucial when significant changes occur. This includes renovations, acquiring new plant and equipment, or changes in property use. Under Division 40 of ITAA 1997, plant and equipment must be depreciated based on their effective life, which can change with new acquisitions. Division 43 covers capital works, which might need reassessment if structural improvements are made. A common misconception is that schedules need updating annually regardless of changes, which isn't necessary unless prompted by specific events.
How This Works in Practice
Consider a 2015-built 3-bedroom house in Melbourne, originally purchased for $800,000. The owner, after making $50,000 worth of renovations, including a new kitchen and bathroom, should update the depreciation schedule. The new assets increase the deductible depreciation, potentially saving an additional $2,000 in tax in the first year alone, assuming a 37% marginal tax rate. Without updating, these deductions would be missed, resulting in unnecessary out-of-pocket expenses.
Professional Insight
In our experience, many investors overlook the impact of small renovations on their depreciation schedule. One thing we frequently see is investors forgetting to claim depreciation on new assets like appliances, which can be significant. What most investors don't realise is that even small changes, like replacing carpets or blinds, can cumulatively add up to substantial deductions. Another common oversight is not updating the schedule after legislative changes, which can lead to missed opportunities.
When Does the Answer Change?
When Should You Seek Professional Advice?
You should seek professional advice if you've made any changes to your property or if you're unsure about the impact of legislative changes on your depreciation. A Chartered Quantity Surveyor can ensure your schedule is up-to-date and compliant, maximising your deductions. Accountants can further tailor advice based on your specific financial situation.