Depreciation Explained

Property Investors: Save Money on Your Tax

Property investing can be complex and confusing. It’s important for property investors to be aware of all aspects of investing, particularly tax depreciation.

To explain simply, depreciation is a tax deduction available to property investors. As a property investor, your investment property earns income through rent from tenants, for example, which means there are various tax deductions available to you.

These deductions are usually things you have spent money on when purchasing or improving an income-generating property. You can claim depreciation from the day you settle your property and claim tax deductions for wear and tear on your investment property for up to 40 years.

These tax deductions reduce your taxable income which reduces your tax and puts more money in your pocket. For example, if you earn $90,000 and claim $15,000 worth of tax depreciation you only pay tax on $75,000.

“Put simply, tax depreciation is a deduction available to property investors regardless of property type, location or size,” said GRC Asset Services Manager Matthew Brown.

“Depreciation allows you to claim tax deduction for the wear and tear on an investment property over time. We highly recommend all property investors engage a qualified Quantity Surveyor to get the best returns possible,” he said.

To declare depreciation, the Australian Taxation Office requires you to engage a qualified Quantity Surveyor and registered Tax Agent to prepare a depreciation schedule for your investment property.

Calculating construction costs and property depreciation is a highly technical process and not something property investors can do on their own explains Matthew Brown.

“Do-it-yourself tax depreciation schedules are very risky. There may be legal ramifications, with a potential audit by the Australian Taxation Office, and you will most certainly be missing out on deductions,” he said.

Key things to know

•       Your accountant or real estate agent are not qualified to prepare your depreciation report. Only a qualified Quantity Surveyor and registered Tax Agent can legally prepare tax depreciation reports, which is a good thing for investors. If your property was built after 1985, your accountant is not allowed to estimate construction costs.

•       Don’t risk a tax audit; calculating construction costs and property depreciation is a highly technical process with a number of legal implications which may trigger a tax audit if not prepared properly.
•       In most cases, depending on the location of your property, a detailed tax depreciation and capital allowance report will cost between $450 – $850.

•       Your tax depreciation schedule is 100% tax deductable which means the cost of this report can be offset against your taxable income. Remember, this small upfront investment can save you thousands of dollars for each year that you own your investment property.

•       You can claim depreciation on new and old properties of all types including residential and commercial properties in Australia and overseas. Every property is unique so it pays to get expert advice.

How to get started

Sammut Bulow has formed a strategic alliance with GRC Quantity Surveyors, contact GRC Asset Services Manager, Matthew Brown, or Senior Quantity Surveyor, Edward de Wet. They will ask you to complete a secure online form with information about your property such the purchase particulars, location and settlement date. Alternatively, the GRC team can work with your accountant to get the process started. Once your investment property has settled, and all your investment property details have been provided, it will take between 2-4 weeks to inspect your property, complete the depreciation schedules and issue them to you. Once your tax depreciation schedules are complete all you need to do is hand over this report to your accountant at tax time.