The fundamental principal behind depreciation is to compensate the taxpayer for the reduction in value of items used in the production of taxable income.
Any building that is used for income producing purposes has potential for tax depreciation. These include residential buildings (houses, apartments, townhouses), office buildings, hotels, restaurants, industrial buildings, childcare centres and shops.
Typically the value of depreciation allowance that can be claimed for a residential investment property may range between $2,000 to $15,000 per annum depending on the age, size and quality.
There are two categories of capital building depreciation that can be claimed for an investment property.
1. Division 43 – Capital Works Deductions
A flat rate of depreciation can be claimed against the original construction cost of the building. The rate applied is 2.5% per annum however this percentage may increase to 4% subject to the date of construction and the function of the building.
- refers to the construction costs of the physical building, for example concrete, brickwork, timber, roofing etc.
2. Division 40 - Plant and Equipment (depreciating assets)
You are able to claim a number of items within a building at an accelerated rate of depreciation that is in excess of the flat rate provided by the Division 43 allowance. The tax office considers these items have a lesser life span than the overall bricks and mortar components of the building.
- refers to the fittings within the building, for example the oven and stove, air-conditioner, carpets, blinds, curtains, hot water system, smoke alarms, fans etc.
The role of the Quantity Surveyor
In order to produce a depreciation schedule, the property owner will require the services of a Quantity Surveyor (QS). Currently the ATO recognises Quantity Surveyors as appropriately qualified professionals with specific construction costing skills and experience suitable for producing Tax Depreciation schedules.
Quantity Surveyors are recognised under the Australian Tax Office Ruling No. 97/25 as appropriately qualified professionals for the purposes of assessing the construction value of rental properties.
Specifically TR 97/25 holds that: “Unless they are otherwise qualified, valuers, real estate agents, accountants and solicitors generally have neither the relevant qualifications nor the experience to make such an estimate”
Why Choose LA& Associates Quantity Surveyors?
- We are recognised by the Australian Taxation Office as having the appropriate qualifications and experience required to produce estimates of construction costs
- We maximise the available depreciation on assets in line with relevant income tax legislation so that our reports meet the requirements of both the investor and the Australian Tax Office
- Our tax depreciation reports are prepared by qualified professionals
- We arrange site inspections, measure and photograph your property
- All site inspections are conducted by qualified members of the Australian Institute of Quantity Surveyors (AIQS). Many firms will not send a qualified Quantity Surveyor to inspect your property
- We are able to offer a personal and professional service for a competitive fee
We invite you to contact us directly should you wish to discuss your property requirements further.
Australian Institute of Quantity Surveyors: www.aiqs.com.au
Australian Taxation Office: www.ato.gov.au
Australian Taxation Office Guide To: Residential Rental Properties 2009
Australian Taxation Office Guide To: Depreciating Assets 2009