13 Feb What is a Depreciation Report and Why Do I Need One?
For property investors, maximising returns and reducing tax liabilities is likely to be a key goal. One of the most valuable tools the investor has in order to achieve this aim is a depreciation report.
Many investors in Australia overlook this important tool, potentially missing out on tax deductions potentially worth thousands of dollars each financial year.
In this property investment blog, we will help you to understand what a depreciation report is and why commissioning one should be an integral part of your investment strategy.
What is a Depreciation Report?
Depreciation is the natural wear and tear of a building and its assets over time. A depreciation report is a detailed document prepared by a qualified quantity surveyor that outlines the tax deductible depreciation allowances for an investment property.
The Australian Taxation Office (ATO) allows investors to claim this depreciation as a tax deduction, reducing your taxable income and increasing the cash flow you receive from your investment property.
Depreciation can be divided into two main categories:
Capital Works Depreciation (Division 43): This includes deductions for the structural elements of the property, such as walls, floors, roofs and built-in fixtures. Capital works depreciation applies to residential properties built after 16 September 1987 and can be claimed over a 40 year period.
Plant and Equipment Depreciation (Division 40): This covers removable assets within the property, such as carpets, blinds, air conditioning units and kitchen appliances. These items have varying effective lifespans as determined by the ATO.
Why do I need a Depreciation Report?
A depreciation report offers many benefits to property investors that can potentially increase the profitability of an investment property.
Make the most of tax deductions
Having a full depreciation schedule means you will be able to claim all of the tax deductions you are entitled to each financial year. However, if you don’t have a Depreciation Report you could potentially pay significantly more in tax than you are required to do over the life of your investment property.
Increase cash flow from your investment property
Reducing the taxable income associated with your investment property and claiming the depreciation deductions to which you are entitled will reduce your taxable income and improve your overall cash flow.
Meet ATO compliance obligations
A Depreciation Report should be undertaken by a qualified professional quantity surveyor in order to ensure that any depreciation schedule is prepared in accordance with ATO requirements and so is fully compliant.
Better investment decisions
Understanding how depreciation works enables investors to be better informed, particularly with regard to the long-term returns a property is likely to provide.
When is the right time to get a report?
You should ideally get a Depreciation Report as soon as possible after purchasing an investment property.
However, even if you have owned a property for a number of years without claiming depreciation, a report may enable you (subject to ATO rules) to backdate deductions that weren’t previously claimed.
Talk to Power of Property to make the most of your investment
A Depreciation Report is a powerful tool for anyone investing in property in Australia. Having a professionally prepared depreciation schedule can provide significant tax benefits (while remaining ATO compliant) and help to increase available cash flow.
To find out more about hiring the services of a registered quantity surveyor with experience in property depreciation, talk to the team at Power of Property today.
We work closely with experienced quantity surveyors to provide our investors with accurate and compliant depreciation reports, so whether you’re buying a first investment property or looking to increase your existing portfolio, we are to help you optimise your investment strategy.
Call Michael Lawton on 0407 785 560 or Danielle Charlton on 0411 268 795, or book an online property strategy session today.