For many Australians, it has become a priority to ensure that their investment properties are energy efficient.
Both media recognition of the impact of carbon emissions and climate change as well as rising electricity and water costs have been influencing factors that have encouraged investors to choose environmentally friendly assets for their investment properties. These factors have also meant that a number of building regulations have been introduced to ensure newly built properties meet minimum criteria for energy efficiency.
These standards are particularly relevant when a property is planned to be used as a rental property. For example, in a number of areas, tanks are required to be included when building a brand new home. While before an investor can rent a property, capital works items such as taps and shower heads may be required to have maximum flow rates and meet at least a three star water efficiency rating.
For property investors, there are a number of structures and assets which can be installed to increase the energy rating of a property. Examples include rainwater tanks and pumps, insulation, low wattage/variable speed pool pumps, appliances that have higher energy star ratings, solar hot water systems and solar generating systems, gas heating (rather than electric) and solar pool heaters.
Although including these items in an initial build or a renovation can prove costly for an investor, many can be claimed as either a capital works deduction for the building structure or as plant and equipment depreciation. The table below examines the deductions an owner can expect to receive in the first financial year alone for some of these items.
Many of the items contained within the above tables are among those investors frequently miss or don’t maximise depreciation deductions.
Although tanks and thermal roof installation are classified as capital works deductions and therefore will only receive a first year deduction at a rate of 2.5 per cent totalling $365, capital works deductions can be claimed at this rate over the life of the property, or 40 years.
Deductions for plant and equipment assets which can help a property to be more environmentally efficient on the other hand are each claimed based on their individual effective lives as outlined by the ATO. When an asset has a depreciable value less than $300, the item will entitle its owner to an immediate write-off while assets valued less than $1,000 will entitle the owner to an increased rate of 18.75 per cent in the first year and 37.5 per cent for each year afterwards. In the first full financial year alone, an owner can recoup $1,854 in deductions for the above plant and equipment assets installed into their investment property. These deductions become even more significant when other assets found within the investment property are claimed.
Investors who would like more information on the depreciation deductions available for structures or assets that may increase the energy rating of their property can consult with a specialist quantity surveyor. A depreciation schedule can outline all of the deductions an investor can claim for the life of the property and include a site inspection to ensure no assets are missed.