Property Renovation and Depreciation: Facts Every Investor Should Know

Property depreciation is one of the best tax breaks available to investors. To claim this depreciation and make savings, you need to present a depreciation schedule to the Australian Tax Office (ATO). Depreciation schedules outline the types of assets within a property and their value. As a property owner, it is essential to know that you can also claim depreciation on renovations as well. In fact, renovating property is one of the best strategies you can use to increase your property value and claim more depreciation.

Here are some facts about property renovation and depreciation that can help you make more savings annually.

You can claim depreciation for old construction

Most investors have the misconception that they cannot claim depreciation for the old structure. The ATO has set limitations on the eligibility of depreciation on rental structures and capital works. Property whose construction commenced before 17th July.1985 is not eligible for capital works deductions. However, capital works whose construction commenced after this date are eligible. Note that this applies only to capital works and not the equipment. Regardless of their age, equipment within a property can be depreciated as long as they are eligible.

You should prepare a depreciation schedule for old property

Failure to prepare a depreciation schedule for an old property before renovating it can deny you the opportunity of claiming for deductions. To avoid this, have your quantity surveyor conduct an inspection to identify the value of each item in the property and prepare a schedule. You will receive tax deductions at the end of the first year as the new owner of the property, even if you discard the items during renovations.

You can claim depreciation for previous renovations

If property was renovated by the previous owners, you may request for deductions after purchasing or renting it. Note that for capital works, the renovations should have been completed before the date prescribed by the ATO. Your quantity surveyor can help in assessing the actual value of the renovations to ensure you do not under- or over-depreciate the renovations.

New assets can increase your deductions

During property renovations, you may want to remodel parts of the property, install new flooring, or purchase different types of mats and carpets. Choosing these assets wisely can help you maximize your future deductions. A tax expert can help you in calculating the amount of subsequent deductions accruing to various assets before purchase so as to make the best decision for maximum deductions.

Finally, note that your old depreciation schedule only covers the old assets and property value before renovation. You need a new depreciation schedule after renovations as this will help you claim deductions on the repairs and replacement of assets within the property.

About Me

Tim's Taxes: Transform Your Understanding of Taxes

Hello! My name is Tim. This blog is about taxes. I did my own taxes for both my family and business for years. Only recently did I decided to outsource my business taxes. I intend to write posts about outsourcing your taxes as well as other tips on reducing your tax burden, doing your own taxes and more. If you have questions about taxes, I hope that you can find your answers here. I own a small restaurant that I run with my wife Cat. We have two kids, Grey and Thomas. When I have time, I love to travel, hike and rock climb.


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