When an investor purchases a new property, it’s rare that they will own the property for a full 12-month period before tax time comes around.
Often when investors purchase a property leading up to the end of financial year they think that it’s not worthwhile getting a depreciation schedule until the following year. However, even if an investor has purchased a property recently, they can still take advantage of the depreciation deductions available.
Usually, the total depreciation available in the first financial year is adjusted according to the portion of the year the property is owned. For example, if a property is owned for six months, then 50 per cent of the years’ depreciation could become available. However, specialist Quantity Surveyor’s can use methods to make partial year claims more beneficial to the property owner, regardless of the time the property has been owned and rented, when they prepare a tax depreciation schedule.
One method used is the immediate write-off. Any item added to property which cost $300 or less can be immediately written off within the first year of ownership. This is regardless of the number of days the property has been owned in that year.
Another method specialist Quantity Surveyor’s will use is low-value pooling. Low-value pooling can be applied to any item within an investment property which is valued less than $1,000. Placing these items in a low-value pool allows the owner to accelerate the rate of depreciation, increasing deductions further.
When an investor selects a Quantity Surveyor to complete a tax depreciation schedule for their property, they should ensure to choose a report which will include a partial year claim based on the time the property is rented.
Let’s look at an example of the depreciation deductions for one property investor who purchased a house for $550,000 a mere 29 days before the end of the financial year.
On settlement, the investor contacted their specialist Quantity Surveyor to arrange a tax depreciation schedule. The Quantity Surveyor performed a site inspection of their property to take photographs and identify all of the plant and equipment assets contained within the property. They also took measurements and identified the original and any additional capital works which had taken place over the life of the property.
The following table shows the assets which cost less than $300 which the specialist Quantity Surveyor was able to apply an immediate write-off, totalling to $1,288 for this property owner.
Remaining plant and equipment items were depreciated using their effective lives and scaled based on the small portion of the first financial year the property was owned. These accounted for $520 in depreciation deductions. The deductions for capital works for structural items in the property was found to be $770.
Although the property was only owned and rented for 29 days, the specialist Quantity Surveyor found a total deduction of $4,852 for this property owner.
This example shows that even when an investor has only owned a property for a few weeks of a financial year, it is beneficial to arrange a depreciation schedule from a specialist Quantity Surveyor straight away. By claiming depreciation sooner, an investor who has just outlaid substantial funds to secure the purchase of the property can access additional cash flow which may help to start reducing loan liabilities or to save for the next investment property.