Designers Can Help Clients by Understanding Tax Deductions

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Tuesday, April 14th, 2015
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Interior designers within Australia can assist their clients and add value to their own businesses by encouraging property owners to learn more about depreciation and to take advantage of available tax deductions, a leading quantity surveyor says.

According to BMT Tax Depreciation managing director Brad Beer, potential deductions with regard to depreciation for income producing properties can be significant, and that design professionals who encourage their clients to learn about these will improve their chances of either winning subsequent work or gaining referrals from the client in question.

“Depreciation claims assist property owners by helping them to reduce tax liabilities and improve the cash flow earned from the property,” Beer said.

“By encouraging their investor clients to learn more about depreciation and take advantage of the deductions available, interior designers can add value to their existing business. Investors who save money by claiming depreciation during the process of a renovation, fitout or retrofit are far more likely to return in future or recommend an interior designer for future work if they go to the extra effort of educating investors about the benefits of depreciation.”

Beer said depreciation deductions are available for all income producing properties (residential and commercial) and applies to two broad categories of assets.

Items which form part of the structure of the building, such as walls, doors, roofs, windows and cupboards can be depreciated at rates of either 2.5 per cent per year or four per cent per annum depending on the property type.

Common items of plant and equipment, meanwhile, can be depreciated at rates set by the tax office which vary according to the effective life for individual assets. These include carpets, blinds, light fittings and air conditioning units and will also extend to items such as desks, chairs and wall devices in the case of commercial properties as well as industry specific devices used sectors such as manufacturing, healthcare, travel and accommodation.

However, there are limitations. Depreciation can only be claimed on buildings for which construction was completed after September 15, 1987 in the case of residential buildings and July 20, 1982 in the case of commercial buildings, although claims can still be made for improvements or new items installed after these dates. With deductions only applying to income producing properties, meanwhile, they will generally not be applicable in the case of owners’ private residences (though partial claims may be available where part of the property is used for income producing purposes, such as renting out a room or using part of the house to run a business).

Moreover, Beer said advice should be sought prior to undertaking renovations, upgrades or refurbishments as depreciation calculations can be impacted by events such as the removal of existing items, installation of new items or improvement of existing assets beyond their original condition.

Asked how designers can best help clients to maximise the use of incentives available, Beer suggested they recommend owners consult with one of the groups of professionals who is recognised by the ATO as being qualified to provide construction cost estimates for depreciation purposes. According to ATO ruling (97/25), these include quantity surveyors with experience in the relevant type of construction, ‘clerks of works’ (such as project organisers for major building projects), supervising architects and builders with relevant experience in estimating construction costs for similar building projects.

Beer said quantity surveyors can provide estimates of available deductions prior to any new builds, fitouts or retrofits along with tax depreciation schedules which owners and their accountants can subsequently use when claiming entitlements.

In the case of renovations, he said schedules should be completed both before and after the works, with site inspections involving photographs and detailed notes being undertaken prior to commencement of the work. This will not only facilitate the claiming of depreciation for newly installed or improved assets as part of the work but will also the claiming of the remaining depreciable value of any assets which are removed, which may be claimed in full in the year of their removal.

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