Here’s why you need a property tax depreciation schedule

Article by Sinead Clarke Marketing Specialist 13 November 2023

“Did you know that 70% of investors in Australia don’t arrange a tax depreciation schedule for their investment properties? Depreciation schedules are one of the most effective but underused tools available to a property investor to maximise their returns.” — Andy Trinh, duotax

Why do you need to know about tax depreciation as a property owner?

So, you just bought an investment property! Firstly, congratulations and secondly, have you looked into getting a tax depreciation schedule? If you haven’t, don’t fret as we’re here to break down all things property tax depreciation and why you need to have a plan. Having a tax depreciation schedule allows you to comply with Australian Taxation Office (ATO) standards, and claim your property depreciation under taxable deductions. The purpose of this is to ensure you’re informed about how much value your property and its assets will lose, as well as how much of that depreciation you can claim back at tax time! This leads us to our next point…

So, what is property tax depreciation?

Well, that’s a great question! Property tax depreciation simply refers to the price of your property and its associated assets depreciating. To be more specific, when you first purchase your investment property, the taxation office treats the purchase as the acquisition of a building, plus separate depreciating assets. These depreciating assets include more permanent items such as extensions and improvements made to the building, and non-permanent items such as furniture.

How does this affect your tax return?

We now know what tax depreciation means in a literal sense, however, what does it mean for your tax return? As investment properties are generally purchased to generate income, they’re a taxable asset. It’s guaranteed that you’ll pay taxable income on the property, but to reduce the tax payable you could offset it with tax deductions due to depreciation. Property depreciation is also seen as a non-cash deduction, meaning that you don’t have to spend any money to claim it. With this being said, it’s commonly advised that you acquire a tax depreciation schedule before lodging anything relating to your investment property with the ATO.

So, what is a tax depreciation schedule and is it beneficial?

Tax depreciation schedules are reports that outline the depreciation deductions that you can claim on your investment property. While they sound rather simple, they allow you to ensure you’re not only complying with tax regulations but also deducting the maximum depreciation amount. To get into the weeds of it briefly, the schedule includes the original value of your investment property, the estimated effective life of your investment and the eligible deductions you can make on both the permanent and non-permanent assets. The Real Estate Institute of Queensland expanded on this stating that “80% of property investors don’t take full advantage of tax depreciation”.

And how do I get one?

Typically a tax depreciation schedule is prepared by a professional quantity surveyor who will inspect your investment property and assign a value to each depreciating asset. An inspection of your investment property is required by the ATO. Before scheduling time for an inspection, you can always use an online tool such as a depreciation calculator to get an estimate on how much depreciation you can claim come tax time. Companies such as duotax are taking the guesswork out of the process, by providing quick and easy depreciation schedules. 

Beyond this, the ATO also recommends keeping stock of every receipt that you acquire that’s related to the update or repair of your investment property. As well as setting up an easy-to-use record-keeping system to ensure nothing gets missed, you could also consult your Property Manager who will be able to assist you with this process. 

Disclaimer:

Buyers and investors should consider conducting their own research and seeking professional advice before making any property purchases. The information enclosed has been sourced from SQM Research and the Reserve Bank of Australia and is provided for general information only. It should not be taken as constituting professional advice.

PropertyMe is not a financial adviser. You should consider seeking independent legal, financial, taxation, or other advice to check how the information relates to your unique circumstances. 

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