Tax Depreciation questions answered

Frequently Asked Questions

Have a question?

My property has been refurbished can i depreciate these costs?

Most older style properties had undergone some sort of refurbishment work. Whether it is a new kitchen or bathroom, the work will attract depreciation. Most importantly, our Quantity Surveyor will be able to establish the cost of the works, even if you don’t have receipts to include within your depreciation schedule.

I have been told my property is too old to depreciate

We found very few properties which are not worthwhile depreciating. In fact, even if your property was built pre 15 September 1987 and no longer eligible for Division 43 (Building Allowances), you will still be eligible for Division 40 (Plant and equipment) depreciation.

In addition to this, your property may have undergone refurbishment works more recently. It will also attract both building allowances and plant and equipment depreciation. Therefore, it is worthwhile to talk to a qualified Quantity Surveyor before you decide the property is too old for depreciation deductions. 

How do you estimate the costs for the depreciation schedule

Koste employs qualified Quantity Surveyors with years of industry experience needed to complete accurate depreciation schedules. The ATO have recognised that Quantity Surveyors are one of the few professionals to have the appropriate skills to calculate the cost of items for the purposes of depreciation in accordance with TR 97/25. We prepare depreciation schedules for all property types, estimating the historical construction costs using our extensive cost databases and inhouse resources.

Do I need a site inspection?

Where possible we would certainly recommend a site inspection by a qualified inspector. The inspectors are highly trained to identify qualifying assets, pick up renovation works and estimate costs of construction work. It is however not always possible to complete a site inspection, due to a number of reasons. Where this is the case, Koste will pass on the saving for the survey fee to our clients.

When will my report be issued?

Koste prides itself on getting out reports for our clients within a few days after payment is made in full and the site inspection being completed. There are circumstances which are beyond our control including obtaining entry notices from agents and tenants providing our team with access to complete the site inspection. Where you have a urgent request for your report, we will do our best to prioritise this for you.

Will the new Government Legislation affect me? I Bought My Property After 9th May 2017?

The Government made some changes affecting Division 40 (Plant and Equipment) assets on properties acquired after the 9th May 2017 7:30 pm AEST which were classified as second hand.

Koste still includes Division 40 assets in your report, as you can still claim the deduction as a capital loss. It is equal to the difference between an asset’s original cost/value and its termination value. In the other words, it may be offset against any future capital gain. Please note that the new legislation does not affect new assets purchased for the second-hand property. Subsequently, new assets will be deducted in the usual way and shown in your report.

The Government changes do not restrict the ability of an investor to claim Division 43 building write-off deductions for a residential rental property acquired after 7.30 pm on 9 May 2017.  Depreciation claims in respect of commercial properties and properties used in the course of carrying on a business will also not be affected by the recent depreciation changes.

Any questions of further details can be sought by calling a member of our technical team on 1300 669 400 or contact us via our chatbot

Which package should I choose?

Our most popular package is Gold, where all you need to do is to provide some basic information and the access contact, we will arrange the site survey with the property manager or the tenants on your behalf and will produce the report with all the basic inclusions in the property. However, if you are very familiar with your investment property or if you can provide comprehensive property specifications and construction drawings, Silver will be suitable for you, where we will base on the information provided to complete the depreciation report. Platinum is our most inclusive package, which will cover the depreciation of future, asset write-offs, as well as unlimited future updates of your depreciation report, and more.

Still unsure? Talk to us via online chat or phone us at 1300 699 400, or drop us an email  by info@koste.com.au

What is the difference of a depreciation report and a valuation report?

A depreciation report shows the yearly tax depreciation of your investment property for a series of years, which can be used at your tax return to help reduce your taxable income and thus reducing your tax payable. The depreciation calculation is based on the construction cost with a fair allowance for the purchase price. A valuation report shows the value of your property at a specific time point that you can use to calculate your capital gain or loss when you sell the property. The valuation of a property is based on the market condition as well as many other property attributes.

Is it worth to have a depreciation report if the property is more than 10 year’s old?

This will be a case by case scenario and will also need to take account of when you made the purchase (referring to the next question). Technically speaking, the depreciation of capital structures will be 40 years, which include both the originally constructed structures and any other additions in the years after, starting from the time when that structure was established. However, the value of the depreciation varies due to the condition of the property as well.

Is it worth to have a depreciation report if I purchased a property after 9 May 2017?

This will also be a case by case scenario. If the purchased property is brand-new or is under the company, the trust or the super fund (other than SMSF), the new legislation amendment will not affect the depreciation. If the purchased property is second-hand and is not under the company, the trust or the super fund (other than SMSF), the depreciation will be limited to Division 43 Capital works and new assets only. Second-hand assets in Division 40 Capital allowances will be counted as capital loss, instead of depreciation.

What is the difference between Division 43 - Capital works and Division 40 - Capital allowances?

To make it easy to understand, capital works refer to any fixed structure such as walls, roofs, driveways, fences, carports etc; while capital allowances generally refer to any removable assets such as light fittings, air conditioning units, blinds, carpets etc. Those items usually have a much shortly effective life than 40 years. To distinguish these two different categories is important, as Australia tax legislations have different treatments in terms of the depreciation.

I just changed my main occupancy to an investment property, how will the depreciation be affected?

The depreciation for any second-hand property that becomes rental property after 1 July 2017 will be limited to Division 43 Capital works and new assets only, if the property is not under the company, the trust or the super fund (other than SMSF). Second-hand assets in Division 40 Capital allowances will be counted as capital loss, instead of depreciation.

Consider the following illustrative scenario as an example:

You purchased your first home in May 2015 and lived there until Jan 2019. In Dec 2015 when you were living there, you installed solar panels and added a carport. In Jan 2019 when you were moving out, you upgraded the cooktop and oven to attract tenants. In Sep 2019 when the tenants were living there, you changed a broken ceiling fan. Can the items mentioned above all be counted as your depreciation?

Therefore, we always request our client to provide any expenditures incurred with descriptions, installation dates and costs.

Some companies have less years, does that mean they give you more depreciation each year?

We show 40-year schedules for both the diminishing value method and the prime cost method. In other words, your tax depreciation report is valid for 40 years. ATO sets the effective life of capital allowances and capital works for the items. Therefore, the amounts of depreciation each year will not be increased by showing fewer years in the schedule.

Can you claim tax depreciation from your Overseas properties?

As an Australia resident for tax purposes, you are eligible to claim tax depreciation from your overseas investment properties. Our Directors have experience in completing Tax Depreciation Schedules on many properties throughout cities of the world including Dubai, London, Singapore, New York, and Auckland. Furthermore, Our team uses local construction costs to calculate build costs, utilizing the current exchange rates between the property location currency and Australia (AUD). 

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