Maximising Depreciation Benefits – Think OUTSIDE not just Inside!

Happy EOFY (End of Financial Year). Now is a timely reminder for investors to analyse some of the structures and improvements not just on the inside, but also the outside of their properties, as these items endure wear and tear over the years, and therefore may be eligible as a depreciation deduction.

The Australian Taxation Office (ATO) allows owners of income producing properties to claim depreciation deductions when they submit their annual income tax assessment.  However, before lodging, we recommend you consult with a specialist Quantity Surveyor to arrange a tax depreciation schedule for your investment property.  This schedule will outline all the deductions available structurally, as well as plant and equipment assets inside and outside.

Assets located outside of an investment property are amongst those frequently missed by investors. When an investor requests a tax depreciation schedule from a Quantity Surveyor, they will include a detailed site inspection of the property to take photographs and record every asset found.

The deductions a specialist Quantity Surveyor outlines on a depreciation schedule are split into two types. Structural items will be classified as capital works deductions, while assets which can be easily removed from the property can be claimed as plant and equipment depreciation.

Items classified as capital works will depreciate at a rate of 2.5 per cent each year over forty years. Plant and equipment assets, on the other hand, each have an individual effective life as set by the ATO.

Examples of outdoor structures which depreciate may include:

  • In-ground pool
  • Fencing
  • Shade sails
  • Concrete slabs
  • Clothes lines
  • Sleeps
  • Pavers
  • Window awnings

Examples of depreciable external plant and equipment assets include:

  • Solar garden lights
  • Outdoor furniture
  • Swimming pool filters and chlorinators
  • Garden sheds
  • Garden watering systems

In summary, maximising depreciation deductions for external items and considering whether any improvements can be made can add thousands of dollars to an investor’s pocket. It also can add additional value to the property and appeal to tenants, helping to increase your rental return.

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