Built-in wardrobes are a common feature in Australian investment properties, and claiming depreciation on them can provide significant tax benefits. Understanding where these fit into the tax legislation is crucial for maximizing your deductions.
Under Division 43 of the ITAA 1997, built-in wardrobes are considered part of the capital works of a building. This means they fall under the building structure, allowing for depreciation claims over 40 years. The most common misconception is that these are plant and equipment items, which they are not. However, if you installed the wardrobes after purchasing the property, and they are removable, they might be claimed under Division 40 as plant and equipment, subject to the 2017 budget changes.
To see how this plays out, consider a 2015-built 3-bedroom house in Melbourne. The owner installed built-in wardrobes in 2020, costing $8,000. As part of the capital works, they depreciate at 2.5% per annum, resulting in a $200 deduction each year. Over 40 years, this totals $8,000 in claims. If the wardrobes were removable, they might be claimed under plant and equipment, but only if purchased new and compliant with post-2017 rules.
In our experience reviewing thousands of properties across Australia, many investors overlook the cumulative impact of small capital works items like built-in wardrobes. They often fail to include these in their depreciation schedules, missing out on potentially thousands in deductions over time. Another common oversight is not updating their depreciation schedule after renovations, leading to inaccurate tax returns.
The answer can differ depending on your situation. For example, if you installed the wardrobes in a property acquired post-9 May 2017, and they are second-hand, you cannot claim them under Division 40. However, they still qualify under Division 43. For properties built before 1987, unless renovated, no capital works deductions are available. If you're dealing with a commercial property, different rules may apply, and it's crucial to consult a professional.
When it comes to property tax claims, individual circumstances significantly influence the outcome. Engaging a Chartered Quantity Surveyor ensures accurate assessments of eligible items, and working with your accountant can help integrate these into your overall tax strategy effectively.