Currently the business of investment in real-estate is at its boom all over the world. People own different properties in different areas either locally or around the country, and tend to keep it as an asset. However, certain of these people incline to use it as a means of business. Real estate owners invest in properties for residential as well as commercial rental of property. This not only brings them a lot of rental income but also enables them to collect the tax deductions and benefits which are exclusive to the real estate as they are available only of residential or commercial rental property.
There is a long list of these benefits some of which are included here such as; interest, depreciation, repair, casualties and theft losses, insurance, and legal & professional services. All of these are also claimed as deductions on property in the tax return. However, our main focus in this article is the depreciation claim. It’s very important to identify the nature of depreciation, the schedule of depreciation, and how depreciation can be claimed and turned into a benefit? All these questions are answered in the article and enlighten the latest rules that apply to depreciation claim in the Australian market according to the rules set by Australian Tax Office.
Depreciation-Nature and Significance
It is depicted from research results that 80% of real estate investors most of the time fail to take benefit of property depreciation and hence miss out on thousands of dollars’ worth of savings which is rather a huge benefit to the government as the liability turns into earnings.
This is because it is the only kind of benefit which doesn’t require any sort of payment. Exactly! Depreciation is free claim on the property wear and tear, renovation and repair expenses involved over the period of time. However, not most of the property owners have the knowledge of claiming this share of benefit hence tend to lose the opportunity to claim what is already their own.
Thus, one can make a lot of money through their property either in commercial or residential use by claiming their fair share of depreciation claim.
Against property there are two basic kinds of depreciations that can me allowanced; depreciation against plant and equipment which in such cases refer to as the items found with in the building, and the Building allowance(also called in certain cases “Capital Allowance”) which is referred to as the construction cost involved in building of the structure. It is stated that these allowances can be counterbalanced against the assessable income.
Depreciation scheduling and its role
According to the Tax Return Melbourne experts:
The major function or role of the depreciation schedule is that it will reduce the tax payable amount for the real estate owner.
Now the question is how?
In simple words, depreciation of a real estate is grounded on its ‘valuable life’, or the time period in terms of years an estate is estimated to stay in use. Considering the type of property as in, if it is residential or commercial and its date of construction, a property is expected to be useful for 25 years to almost 40 years. However, in certain cases this period might be rather short or can also be longer.
A tax depreciation schedule for Melbourne properties comprises of a report which prepared by the Quantity surveyor who conducts a survey of all depreciable item with in the building by taking their photos and enlisting them through thorough documentation. This tends to act as the adequate proof to make the report. Furthermore, the report includes
- value of every single qualifying plant & equipment article inside the property,
- the total cost of construction involved at the time the building was constructed;
- A proper forecast of the deductions claimable per financial year over the period of 40 years.
Making sure that the depreciation claim is maximized on any building needs a blend of skill regarding construction costing and detailed information of current tax depreciation legislature. So it is suggested that property owner must consult a specialist which in this case are considered to be Quantity Surveyor to formulate an error free Depreciation Schedule before filing the return to ATO.
Depreciation Claim on old Melbourne property- Still Valid?
Majority of the property owners don’t tend to have knowledge of their depreciation claim and so they lose a lot of money. However certain of the property owners who received a professional advice from Tax Return Melbourne CBD specialists discover about their bounty of claim and acquire the required knowledge have certain very simple question regarding their claims regarding their old properties. Is the claim applicable on their old properties? Can depreciation claim be acquired on renovated property?
The Australian law regarding depreciation claim was amended in 1985. If the property was built after 1985, both capital allowance and, plant and equipment can be claimed. But in case of property’s construction prior to 1985 would result in loss of capital allowance but still the owner would be able to claim depreciation on plant and equipment which yet not an empty hand and rather a worthy deal.
In case of property renovation the depreciation can be claimed. The ATO must be given money figure that was involved in the renovation as it is an ATO requirement. It is still possible to apply for depreciation claim even if the renovations were done by the previous owner of the state. Even in certain cases where renovation cost id unknown it is possible to claim depreciation claim. A quantity surveyor must be hired to make the appropriate estimations to ensure the claim.
So, if you are an owner of residential or commercial property, don’t forget to claim what is rightfully yours. Use this depreciation claim to solve your financial issues or so, but always remember to collect.