How brand-new properties depreciate and pay you in the process

depreciationWhen it comes to claiming depreciation on a new home in Australia, there are specific rules and guidelines to follow. Depreciation refers to the gradual decrease in value of assets within your home over time. To claim, you need to understand two key components: building depreciation (capital works deduction) and plant and equipment depreciation.

Building Depreciation (Capital Works Deduction):

The building depreciation refers to the structural elements of your property, such as walls, floors, roofs, and foundations. This deduction is claimed over a period of several years and is based on the construction cost of the building, rather than the purchase price of the property.

In order to assert your entitlement, it is essential to enlist the expertise of a certified quantity surveyor who will compile a meticulous tax depreciation schedule. This comprehensive document meticulously delineates the depreciable assets within the property and provides estimations of their diminishing value over time. It is imperative to ensure that this schedule is crafted and finalized prior to the conclusion of the financial year during which the property was either acquired or commenced generating income.

Securing the benefits demands a proactive approach, beginning with the engagement of a qualified quantity surveyor. The tax depreciation schedule serves as a strategic tool, highlighting the depreciable components of the building and projecting their devaluation over time. This approach allows property owners to optimize their claims within the framework of Australian tax regulations.

The timing of this process is critical, emphasising the need for the schedule to be completed before the fiscal year draws to a close. Adhering to this timeline positions property owners to capitalize on the advantages, contributing to an enhanced financial outlook. In navigating the complexities of property investment, engaging a proficient quantity surveyor and prioritizing the timely creation of a tax depreciation schedule emerges as a pivotal strategy for investors seeking to maximise their returns.

The schedule will provide you with the annual deductions you can claim for the building’s structure. These deductions are typically claimed over a period of 25 or 40 years, depending on the construction commencement date. The specific deduction rates for different building types and construction dates can be found on the ATO website.

Plant and Equipment Depreciation:

Plant and equipment refer to the removable assets within your property, such as appliances, fixtures, and fittings. Examples include air conditioning units, carpets, blinds, kitchen appliances, and hot water systems.

To claim on plant and equipment, you will need to determine the value of these assets and their effective life. The effective life is an estimate of how long the asset is expected to be useful and can be found in the ATO’s depreciation guidelines.

There are different methods for calculating plant and equipment, including the prime cost method and the diminishing value method. The prime cost method spreads the deduction evenly over the asset’s effective life, while the diminishing value method front-loads the deductions in the earlier years.

It’s important to note that for properties purchased after May 9, 2017, the plant and equipment depreciation can only be claimed if you, as the buyer, purchased the assets directly. If the assets were already in the property when you purchased it, you may not be able to claim depreciation on them. That’s why we advocate for brand new properties! To minimise your risk and maximise your cash flow!

To claim plant and equipment , you should engage a qualified quantity surveyor or a registered tax agent who specializes in property tax depreciation. They will assess and value the depreciable assets, prepare a schedule, and provide you with the necessary information to include in your tax return.

Remember to keep accurate records of your property-related expenses and maintain the schedule as evidence to support your claims.

As tax laws and regulations can change, it is crucial to consult with a qualified tax professional or visit the ATO website for the most up-to-date and accurate information regarding claiming depreciation on a new home.

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