Investing in property is a popular way for Australians to build wealth and diversify their assets.
The costs of owning an investment property can be offset by a number of tax-saving strategies, including tax depreciation schedules.
The Home Inspection Hub engages the services of quantity surveyors Baglin Partners to assist our clients with this service.
In the third instalment of our ‘Property Experts’ series, we sat down for a Q & A with Andrew Baglin, the company’s managing director, for more information on the services a quantity surveyor can provide.
What is a quantity surveyor?
A quantity surveyor is a building industry professional who specialises in estimating the value of construction works.
The term ‘quantity surveyor’ describes the role in quantifying the various items of labour and materials that it takes to construct a given project.
What are tax depreciation schedules and how do they benefit owners of investment properties?
The Australian Taxation Office allows owners of investment properties to claim tax deductions for the depreciation of the building and its fixtures and fittings.
These deductions can be claimed for all types of buildings: residential, commercial and industrial.
A tax depreciation schedule itemises the cost and effective life of all the depreciable assets of the building, and the dollar amount that can be claimed as a tax deduction per year.
In most cases, you can expect to claim many thousands of dollars in tax deductions per year.
Depreciation can be claimed on:
- Residential buildings constructed from July 1985
- Non-residential buildings constructed from February 1982
- Renovation works to older buildings
Who can prepare a tax depreciation schedule?
Where the cost of construction and all fixtures and fittings are not known to the investment property owner, the ATO will only accept a tax depreciation schedule prepared by a qualified quantity surveyor.
The quantity surveyor must also be a registered tax agent in accordance with ATO requirements.
A builder who knows the costs of the project may also prepare a tax depreciation schedule but if construction costs are not known, a quantity surveyor must be engaged for this task.
How do tax depreciations schedules differ for old and new properties?
The amount you can claim as a tax deduction generally depends on the total cost of construction at the time the building was completed.
As a general rule, the newer the property, the more tax deductions you will be able to claim, but this does depend on the original construction costs.
For example, a 10-year old residential dwelling constructed for $226,000 would allow you to claim around $5,200 per year for another 30 years.
A new residential dwelling constructed for the same amount would allow you to claim around $8000 per year for the first 10 or so years and then around $5,200 per year for the following 30 years.
A residential property constructed for $365,000 would achieve a tax deduction of around $11,000 per year for the first 10 or so years and then around $8,000 per year for the following 30 years. The higher the construction cost, the greater the claim.
Changes to older residential investment properties
From the first of July 2017, the Federal Government made some changes to tax deductions for older residential properties. The changes only affect properties purchased after the 9th of May 2017, meaning owners can still claim significant tax depreciation deductions for properties in this category.
What do the changes mean?
Non-new fixtures and fittings in the property cannot be claimed as tax depreciation deductions, however the building structure itself can be claimed.
The building structure, known as ‘capital allowance’ is usually around 70%-80% of the total tax deduction for older buildings. For example, for an established property built for $220,000.00, an owner can claim around $5000 per year in tax deductions.
Newly renovated properties – no changes
You can still claim the full tax depreciation deductions if an older property has been renovated with brand new fixtures and fittings, as well as claiming the capital allowance if the building was constructed after July 1985.
Brand new properties – no changes
You can still claim your full tax depreciation deductions as usual on the fixtures and fittings and the capital allowance. The changes do not affect brand new rental properties in any way.
Non-residential investment properties – no changes
You can still claim your full tax depreciation deductions as usual for both older and new commercial investment properties.
A quantity survey can also assist with the following:
Progress claim drawdowns for bank finance:
A quantity surveyor can certify that each stage of construction has been completed by your builder, so that your bank will release funds for you to make progress payments.
It’s a good idea to make sure your building is adequately insured to cover the cost of rebuilding.
A quantity surveyor can prepare an insurance valuation that takes into consideration all cost factors including:
- redesign costs and consultant’s fees
- building upgrades to meet current building regulations and Australian Standards
- demolition and removal of debris
- access to the site
- location of the site
- the availability and cost of labour and materials
- cost escalation to the end of the insurance period
The Home Inspection Hub conducts pre purchase house inspections, new home construction inspections, special purpose inspections and owner builder defect reports across Melbourne, Geelong and Central Victoria.
We also offer specialised services such as contract review, VCAT report and expert witness, and tax depreciation schedules.
**Please note**: Some of our inspections are not currently available as we are working under Stage 4 restrictions in Melbourne, however we can discuss your requirements in preparation for restrictions being lifted.
We can arrange a tax depreciation schedule for off-the-plan properties only at this time.
Image Source:<a href=’https://www.freepik.com/photos/business’>Business photo created by ijeab – www.freepik.com</a>