For investors who have recently purchased an investment property, it’s likely that the yard has already played a part in helping you make a purchase decision that will see you benefit in many ways in the future.
The front yard of the property would have been the very first thing you saw on approach if you attended an open inspection. That first impression you had is important, as the curb-side street appeal will also be one of the factors that will help you to entice a suitable tenant.
In addition to street appeal, the yard is one area which can influence the future capital growth of the property. Capital growth, according to Michael Yardney of Metropole Property Strategists, means the property appreciates in value over time. This is the most important factor of all when deciding whether a property that is currently on the market meets what he calls an “investment grade.” Street appeal, as well as a favourable aspect or good views is one of the main aspects Yardney lists beside the right location, secure off-street parking and security in selecting an appropriate investment property.
It’s important to note that future capital growth is not the only area where investors can benefit from the value of assets found in the yard of an investment property.
Owners of any income producing property are entitled to claim deductions for the wear and tear of the building and the plant and equipment assets contained. Known as property depreciation, these claims are a non-cash deduction, meaning an investor doesn’t need to spend any money to be eligible to claim it.
Most investors who are aware of depreciation benefits tend to think about what they can claim for the building itself and for the assets which are contained inside. However, there are both structural items and plant and equipment assets in the yard which shouldn’t be missed when making a depreciation claim.
Deductions can be claimed on outdoor assets as either a capital works allowance or as plant and equipment depreciation.
A capital works allowance, also known as a building write-off, is based on the historical cost of a structure, excluding the cost of plant and non-eligible items. Investors are eligible to claim capital works deductions on any structural items inside or outside a residential building constructed after September 15, 1987 at a rate of 2.5 per cent per year for a maximum of 40 years. Owners of new buildings can claim the full 40 years, while investors who purchase a property secondhand can claim deductions for any years remaining.
Below are some examples of outdoor structures which qualify for the capital works allowance, their cost and the first full year depreciation deduction an investor can claim for these items.
Plant and equipment items, or the removable or mechanical assets found, entitle the owner to claim depreciation deductions. The age of the building has no impact on whether the owner is eligible to claim plant and equipment depreciation. For these items, the Australian Taxation Office provides an individual effective life over which deductions should be claimed. This effective life resets from the date of settlement.
Below are some examples of the outdoor plant and equipment assets, including an approximate cost and the first full year deductions an investor can claim.
In total, the owner of an investment property with the above structural and plant and equipment assets can claim a total first year deduction of $4,856 for the items found in the yard alone.
It is important to contact a specialist quantity surveyor to arrange a depreciation schedule for the assets and structures found both inside and outside the property. An integral part of the process is the inclusion of a detailed site inspection.
The cost of obtaining a depreciation schedule is 100 per cent tax deductible. There is nothing to lose by making an enquiry and the value to an investor that a depreciation claim will have in terms of additional cash flow is most definitely something which shouldn’t be ignored.