When investors think about property depreciation and what they can claim, they often tend to focus on the building structure and the plant and equipment assets contained inside the building. However, there are a number of structures and assets that can be found in the yard of an investment property which investors are entitled to claim depreciation deductions for.
To ensure investors claim depreciation deductions for these items correctly, here are three simple rules to be aware of and an example of what deductions could be available.
1. Know what items in the yard can be claimed
Everything from the Colorbond fence which separates the property from the neighbours to the Hills Hoist clothesline where the tenants hang their washing will entitle the landlord to claim depreciation deductions.
Even the wheelie bin which gets put out weekly on the front curb for the garbage man will result in depreciation deductions for the property owner.
If there is a pool in the backyard, this could also create a splash of additional cash flow for the owner, as both the structure of the pool itself and the filters and pumps are depreciable items.
To ensure depreciation deductions for items contained in the property are claimed, investors are encouraged to obtain a comprehensive tax depreciation schedule from a specialist quantity surveyor. This schedule will outline all of the deductions available for items contained both inside and outside the property for 40 years.
2. Understand how depreciation deductions will be categorised and calculated
As with the building itself, depreciation deductions for items in the yard will fall into one of two categories: capital works deductions for structural and fixed items and plant and equipment depreciation for any of the mechanical or easily removable fixtures.
It is important that property investors are aware that when a specialist quantity surveyor prepares a tax depreciation schedule, they will use different rates to calculate the depreciation of the items contained.
So long as the property was constructed after September 15, 1987, capital works deductions for the building structure will be calculated at a rate of 2.5 per cent. Owners of a newly built property can claim capital works for the full 40-year period, while those who own older properties can only claim depreciation for the remaining years of the property's 40-year life.
Recent renovations can also entitle a property investor to claim depreciation deductions, even if these were completed by a previous owner. So a new retaining wall or a pergola added to an older property could mean there are still capital works deductions available for a property owner.
Depreciation for plant and equipment assets, on the other hand, is not dependent on the date of construction. The Australian Taxation Office provides an individual effective life by which deductions should be calculated.
A specialist quantity surveyor will photograph all of the plant and equipment assets within a property, including those in the yard, during a site inspection to ensure no items are missed and apply the correct depreciation rate to outline the deductions for each item found within the depreciation schedule for a property owner. They will also use methods such as the immediate write-off rule for items which cost less than $300 and low-value pooling for items which cost less than or are valued less than $1,000.
3. Speak with an expert if you plan to complete work in the yard
Completing a renovation can result in additional deductions to those outlined in an existing schedule. If a property investor plans to complete any work in the yard, it is recommended they speak with a specialist quantity surveyor prior to starting work.
Any existing items removed may have remaining depreciation deductions which can be claimed using a process known as scrapping as an immediate deduction in the year of the items removal.
A schedule may also need to be updated to outline deductions for any new items or structures installed during a renovation.
Real deductions, real returns – outdoor structures and assets
The following table provides some examples of depreciable items found in the yard, how these will be categorised and the deductions available for the owner in the first full year.
An investor who purchased a new property with all of the above items would be entitled to claim $2,504 in the first full financial year alone. Additional deductions would also be available for the building structure and the plant and equipment within the property itself.