Depwest are an ATO compliant and registered Tax Agent in accordance with the requirements of the Tax Practitioners Board. From March 1, 2010, all companies who prepare Tax Depreciation Schedules need to be a registered Tax Agent. For your reference our registration number is: 24695836.
You can check the credentials of your tax depreciation supplier on the Australian government’s Tax Practitioners Board website: http://www.tpb.gov.au/tpb/agent_register.aspx
Depwest qualify under Tax Ruling 97/25 of the Income Tax Assessment Act (1997) as having the expertise to estimate construction costs for depreciation purposes. Depwest are affiliated with industry regulating bodies and utilise the latest ATO Rulings to ensure investors claim the maximum tax depreciation deductions from their investment property.
It is very important to keep all receipts for post purchase expenditure – too often we speak to clients who have not kept a record or receipts usually because they did not expect that their property would be leased in the future or because they were not aware of depreciation schedules existing. As you have paid for these items yourself, we will have to use what the ATO state as ‘actual costs’
This is similar to completing your own personal tax return – you should not claim for something that you have not got a receipt for!!
We do not need to see invoices or proof of expenditure – although I would highly recommend that you do have this information in the unlikely event of an ATO audit.
The intentions of the property investor will determine which depreciation method will be most suitable for them. By determining your strategy you will need to consider how long you intend to hold the property and if you will benefit greater from higher deductions now or in later years.
Two methods can be applied when depreciating property, the Diminishing Value (DV) and Prime Cost (PC) method.
Why Choose the DV Method?
The DV Method assumes that the value of a depreciating asset decreases more in the early years of its effective life.
- Items to the value of $300 or less can be claimed as an immediate deduction.
- Low value and low cost pooling for assets costing $1,000 or less – accelerating your claim as these items can be claimed at 18.75%, in the first year and at 37.5% for each subsequent year after.
If your aim is to receive a greater return on your investment i.e. achieve greater deductions as quickly as possible – then this is the right choice, e.g. if you are a short term investor.
Why Choose the PC Method?
The prime cost method assumes that the value of a depreciating asset decreases uniformly over its effective life.
- Allows investors to rely on a more consistent depreciation claim each year – a uniform rate until the full value of the assets are claimed, providing investors with a constant projection of their tax deductions.
- Suitable for investors looking to maximise their depreciation claim in later years, e.g. Investors who will live in their property for the first few years, those whose income is expected to substantially increase in the future or businesses.
Your accountant will be able to provide you with tailored advice, as they will be aware of your financial structure.
Obtain as much information from the selling agent/previous owner when purchasing a property.
Very often renovations/additions have been completed on older properties, this will result in a capital works claim for any renovations/additions completed on a property post 1985 – in order for us to determine a value, we will require a year of completion. Renovation information e.g. kitchen, bathroom or laundry should be easily available from the selling agent / previous owner. Whilst property additions such as pergolas, swimming pools, room extension completion dates will be available from the selling agent/previous owner/or council (as they have approval). The council is very helpful and will supply the owner of the property with this information verbally via a simple phone call.
Any residential property built before 18 July 1985 or commercial property built before 20 July 1982 cannot claim the capital works allowance as a deduction.
However, Plant and Equipment items are revalued based on the new settlement date and the purchase of the building.
It is useful for investors to obtain a depreciation schedule just after settlement even if they are not completing renovations.
- Avoid disturbing tenants – complete the inspection prior to tenants moving in.
- The report will always begin from the settlement date – you will be organised well ahead of tax time.
- If you do intend to make some additions (such as an air conditioner, pergola etc.) to the property in the future your accountant can address these – although, it may be a good idea to hold off until the additions have been made if you want to have all your expenditure included in the comprehensive report. Either way – you will have the same result!
Typically, when a client purchases a property with the intention to renovate – they get started on this straight after settlement as they do not realise that Plant & Equipment items (Division 40) are revalued at settlement.
Residual Value Write Off claim is also important – For example, if you wish to renovate the kitchen, bathroom or laundry in a property which was built on or after 18 July 1985, the assessor will be able to determine the residual value for these.
Although these items may be in a dilapidated condition, they will still have value.
Throwing away/demolishing these items is like throwing away money!!