Property investors who attempt to assess their depreciation claims themselves rather than relying on an expert are at risk of missing out on thousands of dollars in legitimate tax savings from their properties.
This is the message from BMT Tax Depreciation Quantity Surveyors, who have worked with more than half a million property investors to help them use tax depreciation to uncover legitimate tax deductions for the wear, tear and ageing of their investment properties.
Bradley Beer, CEO of BMT, says while it is natural for investors to try and save money by doing their own depreciation claims, many people make common mistakes and end up paying more tax than they need to.
One of the most common mistakes in DIY depreciation claims is investors missing items that they can legitimately claim for.
“With more than 6,000 depreciable plant and equipment assets listed by the Australian Taxation Office (ATO), it can be easy for investors to miss common household items that hold deductible value, such as smoke alarms, garbage bins and kitchen appliances,” said Mr Beer.
A depreciation schedule is a comprehensive report that outlines the deductions claimable by an investment property owner on a property’s building structure and the fixtures and fittings within it.
According to the ATO, deductions fall into two categories – capital works allowance for the structural elements of a property such as walls, floors and ceilings, and plant and equipment deductions for a property’s fixtures and fittings such as hot water systems, blinds and stoves.
Another common error is investors including assets in the wrong category of deductions.
“For example, some investors mistakenly assess carpet as a permanently fixed asset rather than a removable asset. If an investor claims carpet that costs $3,650 using a rate of 2.5 per cent (provided for structural deductions and fixed items), they would be claiming $91; however, if depreciated at the correct rate of 20 per cent they could claim $730 in the first financial year.”
Mr Beer said some DIY depreciators may not be aware of how proposed legislation changes relating to plant and equipment deductions could affect their eligibility to claim deductions for certain assets.
“Whilst plant and equipment assets found in properties purchased before 9 May 2017 will be grandfathered and deducted as normal, investors should be aware that under proposed legislation secondhand properties purchased after this date will only allow their owners to claim deductions for newly installed assets they add to the property themselves and capital works deductions,” said Mr Beer.
Investors can request a free tax depreciation estimate from BMT online at bmtqs.com.au/estimate.