Q. I own two apartments as investment properties. They are in the same block, which was constructed in 1989. Is it worthwhile getting a depreciation schedule done for these properties? They’ve never been renovated, but I’m planning on redoing the kitchen and bathroom in the next few years – so would I be better off waiting to get a depreciation schedule done post-renovation?
A. In this scenario, you can claim both against Division 43 (building allowance) and you can also claim against Division 40 (plant items). The building allowance covers the actual construction cost of the building, and is depreciated at a rate of 2.5% per year for 40 years. So even if your property is already 19 years old, you still have a further 21 years of building allowance deductions available to you.
Had the apartments been built prior to 18 July 1985, the building allowance would not have been available.
Plant items include such things as carpets, drapes, stoves, heaters and hot water services. These items are depreciated according to their effective life, which is often between six and 15 years.
In answering this question, we make the assumption these apartments have been owned by you for a number of years. The depreciation schedules of existing property can be used immediately, and may be used to verify up to four years of depreciation if it has not been claimed up until now.
If this is the case, it is definitely worthwhile having the depreciation schedules done now, particularly in light of the fact that renovations are intended. When the renovations are completed, all new items can be adjusted to reflect the costs of additional works. Costs for new works, and in particular new plant items such as stoves and ovens (new kitchen), can be claimed from the time of installation. This way, you can claim the old and the new.
At the time of completion, a revision to the schedule can be made for a small tax-deductible fee, based on expenditure of the renovations. Make sure you keep all receipts!
A tip for bathroom and kitchen renovations: vinyl flooring is considered a plant item and thus is depreciable, whereas tiles are not depreciable.
The experts
Margaret Lomas is the founder of Destiny Financial Solutions, and is a qualified financial advisorand the author of five bestselling property investment books. She was the 2006 Telstra NSW Business womanof the Year. Visit: www.destiny.net.au
Helen Collier-Kogtevs is the director of Real Wealth Australia, which provides simple and easy education programs for investors who want to take control of their financial future. She has used her own strategies to accumulate $7.2m worth of property in just seven years. Visit: www.realwealthaustralia.com.au
Greg Sugars has had 18 years’ experience in the property industry, and is the CEO of Opteon Property Group, Australia’s largest truly national independent property services group. Opteon specialises in property valuations, quantity surveying and advisory.Visit: www.opteonpropertygroup.com.au