If you have purchased an investment property, having a depreciation schedule completed could potentially save you a lot of money. But what is a depreciation schedule, and how can it be useful to you? Here’s what you need to know about tax depreciation reports.
What is a tax depreciation schedule?
A tax depreciation schedule is highly advisable for owners of rental properties. It is a report that enables you to claim property depreciation – a tax break that allows you to offset the decline in value of your property and its fixed contents against your taxable income.
There are two types of tax depreciation you can claim:
- Building allowance – depreciation in the value of the actual building itself.
- Plant and equipment allowance – depreciation in the value of all fixed contents of the property, such as carpets, curtains, appliances and heating systems. However, if you purchased your rental property after 9 May 2017 in Australia, you are only allowed to claim depreciation on plant and equipment you have purchased yourself, not items that were installed by a previous owner of the property.
How to get a depreciation schedule
The depreciation schedule ATO rules specify that a depreciation schedule can only be completed by a qualified quantity surveyor as they have the specialist knowledge required to produce accurate figures. Ideally, they should also be a Registered Tax Agent accustomed to doing depreciation schedule work.
To get a depreciation schedule, you need to arrange an appointment for a quantity surveyor to inspect your property. Then they will complete the report based on their findings.
What types of reports are included in a depreciation schedule?
A depreciation schedule typically includes:
- A breakdown of all costs on the actual building.
- A breakdown of all plant and equipment costs.
- An estimate of the lifespan of each item being claimed for.
- The rates at which you can claim for different items.
- A breakdown of the total amount of depreciation you can claim per financial year.
Your quantity surveyor will know exactly what to include.
Can a property manager arrange a depreciation schedule?
If you have a property manager, they can arrange and oversee the appointment with the quantity surveyor, saving you the time and effort.
Are depreciation schedules for new and old homes?
The amount of depreciation you can claim will depend on when your investment property was built. If it was built after July 1985 in Australia, you can claim Building Allowance, as well as Plant and Equipment. If your property is older than this, however, you can only claim for Plant and Equipment.
Whatever age your property, you can still claim some depreciation. And, it will be worth your while to do so. You can use a depreciation schedule template to calculate how much you are likely to save.
When can a depreciation schedule be completed?
The best time to create a schedule is when you first purchase your investment property as this is likely to produce the most accurate values. However, you can still complete a depreciation schedule if you bought your property no more than three years ago in Australia. This is because your accountant is generally allowed to amend your tax returns for two years after they are lodged.
You should also complete a schedule before and after having any major renovation work done to your property as this can have a significant impact on your tax deductions.
However, unless you are renovating the property, you only need to complete one depreciation schedule. It estimates the amount of depreciation that is likely to occur each year in the future, so you don’t need to get more than one completed. Your accountant will hold onto the depreciation schedule once it is completed so it can be used in your tax returns.
More information about your depreciation schedule
If you are an investment property owner and would like to know more about how to get a depreciation report, we are always happy to help. As highly experienced property managers, we stay up-to-date with all the latest legislation to make sure you can maximise your profits. Please reach out for more advice and support.