When it comes to depreciation many investors only claim for the structure and assets within their investment, but overlook the deductions available outside their doors and miss out on unclaimed tax deductions.
According to BMT Tax Depreciation, deductions for outdoor items are among those most likely missed by investors. Plant and equipment assets such as garbage bins, solar-powered garden lights, garden watering systems, pool filters, freestanding garden sheds, automatic window shutters and water feature pumps are just some of the items that investors often fail to claim. Depreciation can be claimed based on the individual effective life as set by the Australian Tax Office.
There are a couple of exceptions. Items that cost $300 or less will entitle owners to an immediate write-off in the first financial year claim and items that cost $1000 or less or are valued at $1000 or less after previous year’s claims can be added to a low-value pool and depreciated at an increased rate of 18.75 per cent in the first year and 37.5 per cent from the second year onwards.
Investors are often unaware of the deductions they can claim for structural items in the yard, such as retaining walls, clothes lines, fences and in-ground pools.
Claims for these items are based on the historical works deduction. The following table provides examples of the deductions an investor can claim in the first full financial year.
Before investors arrange any repairs, maintenance or improvements to areas outside the property, it’s important they understand how repairs, maintenance and improvements are treated by the ATO. For example, if the work being completed is to fix damage, such as mending part of a fence or replacing guttering damaged in a storm, this will be considered a repair. Work completed to prevent deterioration of the property, for example oiling decking on an outdoor entertaining area, is considered maintenance. Deductions for repairs and maintenance can be claimed by the investor in full within the same financial year that the cost was incurred.
However, if the work done to an item improves the condition or value of an item beyond its original state at the time of purchase, it’s considered to be a capital improvement. Capital improvements are classified as either capital works deductions or plant and equipment. So if the owner was to replace the entire fence of a residential investment property, this would be claimed as a capital works deduction.
Before making any capital improvements or renovations that could increase the value of existing items in the yard, it’s a good idea to speak with a quantity surveyor. They will be able to perform a site inspection of the property before work begins to record both structural items and plant and equipment contained in the yard before they’re removed and scrapped. This is important as the owner may be entitled to claim the remaining depreciable value of the items being removed and scrapped.
After any work is done to the property, investors should also organise for a specialist quantity surveyor to come and perform an inspection to list all new structures and assets and the depreciation that can be claimed by the owner for the remaining life of the property.