Every year the ATO announces they will be targeting property investors in relation to the legitimacy of deductions they are claiming. This is especially for items such as interest and repairs and maintenance.
However, the majority of property investors are doing themselves a massive and expensive disservice by not properly claiming depreciation and building allowances on their property investment. These forgotten claims can cost you thousands of dollars when completing your tax return.
There are two types of claims we are talking about when you are a property investor:
- Depreciation – on common items such as air conditioning units, floor coverings, ceiling fans, hot water systems, lights, antennas, window blinds, cooktops, range hoods, ovens, dishwashers, sheds etc.
- Capital works deductions – for construction expenditure on capital works.
A common trap is sometimes investors incorrectly believe that a property has to be “brand new” in order to claim these deductions. This is not the case. An investor can appoint a specialist Quantity Surveyor to value the depreciable items in an investment property at the date of purchase and claim depreciation on these items in their tax return as soon as the property is available for rent.
Depending on the date of construction of the property (or even the date of renovations performed on an older property), deductions will also be claimable annually for the construction costs incurred.
A specialist quantity surveyor is qualified under Tax Ruling 97/25 to produce these reports which will provide the required tax deductibility information for the life of the investment property. The cost of the report is also tax deductible.
If you have failed to make claims in previous years on these deductions you may be able to amend previous years returns.
Last year new clients of mine which had transferred from another accountant had not been making claims for depreciation or Capital Works deductions for the last 3 years on 2 investment properties. We referred the clients to a Quantity Surveyor and with these depreciation reports, amended the previous returns and generated extra tax refunds of just under $20,000! The depreciation report will also allow these clients to claim tax deductions (and save tax) in future years!
Do you have an Investment Property and are you claiming these two items?
If not – you might be entitled to a Xmas bonus you had not thought of!
If you have any queries regarding this – speak to the team at Green Taylor Partners (we are property investors too!).
Have a great Christmas everyone – surround yourself with laughter!