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Why it’s not too late for property investors to claim tax depreciation

Why it’s not too late for property investors to claim tax depreciation

Just because June 30 has been gone, property investors don’t need to wait another financial year to get a tax depreciation schedule. Even if a schedule is ordered after the end of a financial year (FY), depreciation can still be back-claimed.

First, what is a tax depreciation schedule?

A tax deduction can be claimed for the natural wear and tear, or depreciation, of an investment property and its assets over time.

As the name suggests, a tax depreciation schedule outlines all the depreciation deductions available throughout the lifetime of an investment property (up to forty years).

A tax depreciation schedule is prepared by a specialist quantity surveyor. Once prepared, the investor’s accountant will use the schedule each financial year to determine depreciation deductions.

What happens if a tax depreciation schedule is ordered after June 30?

Let’s say an investor has owned their rental property since February 2019 but didn’t order their schedule until August 2021. In this instance, they can still claim depreciation for FY 2019/20 and FY 2020/21. This is possible because a tax depreciation schedule allows an investor to adjust previous tax returns.

So, what’s the key message here? Even if you missed the June 30 deadline, it’s not too late to claim depreciation. The only difference ordering before June 30 is that the 100 per cent tax depreciation schedule fee can be claimed earlier rather than later.

What if an investor with a schedule made a property improvement last financial year?

In this scenario, the investor must ensure they have their current tax depreciation schedule updated. This is very simple to do and can have them reaping further benefits for years to come.

How can an investor tell the difference between an improvement and repair?

Improvements must be depreciated, while a repair can be claimed as an immediate deduction.

This space can be very grey as sometimes an improvement could be a result of having to make a repair. There’s one fundamental question an investor must ask themselves when determining what something is classed as – “have I improved this beyond its original state?’

For example, if an investor replaces their property’s old carpet with new hardwood timber floors, this is likely an improvement and will need to be claimed using depreciation deductions. But if they replaced part of a rusted gutter or a cracked tile, this would generally be classed as a repair.

Investors can easily determine if something is an improvement or repair by having a quick discussion with a specialist quantity surveyor or their accountant. These situations are often assessed on a case-by-case basis, so it’s important to get the correct advice.

The article is provided by BMT Tax DepreciationTo learn more about depreciation and how it can help you maximise your return come this tax lodgement time, contact BMT on 1300 728 726 or Request a Quote.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances and seek tax advice from your accountants at KMT Partners or wealth advice from our KMT Wealth team.

 

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