Light fittings, when installed in an investment property, can be claimed as depreciating assets under Division 40 of ITAA 1997. These are considered plant and equipment, meaning they have a limited effective life and can be depreciated over time. The effective life of a light fitting is generally around 10 years, though this can vary based on specific types and usage.
The main misconception investors have is confusing the rules for new and second-hand properties. Since the 2017 budget changes, if you acquire a second-hand residential property, you cannot claim depreciation on previously used light fittings unless you installed them yourself and they are brand new. This rule does not affect commercial properties, where the depreciation of all assets continues regardless of their previous use.
To see how this plays out, consider a new light fitting installed in a 2015-built rental property in Melbourne, purchased for $700,000. The light fittings cost $1,500. As they are new, you can claim depreciation under Division 40. Assuming an effective life of 10 years, you could claim approximately $150 per year. At a 37% marginal tax rate, this would reduce your tax bill by $55.50 annually.
In our experience reviewing thousands of properties across Australia, investors often overlook the importance of maintaining accurate records. Not keeping receipts for new light fittings can lead to missed claims. Another common oversight is failing to update the depreciation schedule when new fittings are installed, which can result in inaccurate tax returns. Additionally, many investors mistakenly believe that all light fittings in a property are eligible, even when acquired second-hand, leading to incorrect claims.
The answer can differ depending on your situation. For instance, if your property was purchased before 9 May 2017, you might still be able to claim depreciation on existing fittings. In commercial properties, the rules around second-hand fittings don't apply. Also, for properties owned by SMSFs, the rules can vary, so professional advice is crucial. If the property is jointly owned, the depreciation claim must be divided according to ownership percentage.
Getting professional advice is crucial because the ability to claim depreciation on light fittings can depend on several factors, including the purchase date of the property, whether the fittings are new or second-hand, and the type of property. A Chartered Quantity Surveyor can provide a comprehensive depreciation schedule, ensuring all eligible assets are accurately recorded and claimed. Additionally, consulting with an accountant can optimise your tax outcomes.