Investors who have only recently purchased an investment property leading up to the end of the financial year often postpone organising a depreciation schedule until the following year. However, even if an investor has purchased a property in the last few days of the financial year, it’s still worthwhile getting a depreciation schedule.
Usually, the total depreciation available in the first year is adjusted according to the portion of the year the property is owned. For example, if a property is owned and rented for six months, 50 per cent of the yearly depreciation deductions could become available. When a specialist quantity surveyor prepares a depreciation schedule, they use legislative tools to help to ensure the maximum deductions are claimed, regardless of the time a property has been owned and rented. Two of the methods used include immediate write-off and low-value pooling.
An immediate write-off can be applied to any plant and equipment asset added to an investment property that costs $300 or less. This allows the investor to claim 100 per cent of the value back in the same financial year as the asset was added to the property, regardless of how many days the property has been owned and rented.
|PLANT AND EQUIPMENT ASSETS||TOTAL COST||CLAIM TYPE||DEPRECIATION RATE||FIRST YEAR CLAIM (20 DAYS)|
|Split system air conditioner||$18,493||Effective life||20%||$203|
|Bathroom accessories freestanding||$259||Immediate write-off||100%||$259|
|Door closers||$282||Immediate write-off||100%||$282|
|Exhaust fans||$226||Immediate write-off||100%||$226|
|Garbage bins||$295||Immediate write-off||100%||$295|
|Heat light and exhaust units||$564||Low-value pool||18.75%||$106|
|Hot water system||$4109||Effective life||16.67%||$38|
|Light shades||$984||Low-value pool||18.75%||$184|
|Smoke alarms||$296||Immediate write-off||100%||$296|
|DIVISION 43||ORIGINAL BUILD COST IN 2012||CLAIM TYPE||DEPRECIATION RATE||FIRST YEAR CLAIM (20 DAYS)|
|Total||$379,251||Division 43 building write-off||2.50%||$545|
Low-value pooling can also be used to maximise deductions over a shorter period of time. Low-cost assets are items within an investment property that cost $1000 or less and can be placed in a low-value pool and depreciated at a rate of 18.75 per cent in the first financial year. In the second year, both low-cost assets and low-value assets can be depreciated at a rate of 37.5 per cent. This includes items that originally cost more than $1000, but the remaining depreciable value after the first year’s depreciation claim is less than $1000.
Confusion can arise when there are multiple assets of the same type within an investment property. Although assets that form part of a group can’t be individually written off, they may be able to be depreciated individually in a low-value pool. For example, if a house has a set of six blinds costing around $3000, it would seem the set doesn’t qualify for the extra depreciation. However, as these blinds individually cost $500, they’ll qualify for the low-value pool. A specialist quantity surveyor will ensure the deductions outlined in a depreciation schedule are claimed correctly and deductions for each asset are maximised.
Bradley Beer, Australian Property Investor, September 2014