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Landlords missing out on an important tax deduction

Landlords could be missing out on some significant tax deductions over the lifetime of their investment properties, according to industry experts.

Chief Executive Officer of BMT Tax Depreciation, Bradley Beer, believes many investment property owners fail to realise that they are able to claim ongoing depreciation, especially if their properties are older.

“Depreciation is available on almost all investment properties regardless of age,” Mr Beer said.

He noted the most common depreciation deductions investors need to be aware of are capital works on a property’s structure and permanently fixed items such as kitchen cupboards, doors and sinks.

These can be claimed for up to 40 years depending on the type of construction and the date construction commenced.

“Capital works typically make up the bulk of a landlord’s total depreciation claim, generally 85-90 per cent,” he said. 

The second type of depreciation deduction is on plant and equipment, such as easily removable items like carpet and blinds.

There are more than 6000 allowable plant and equipment assets that the Australian Taxation Office (ATO) recognises, according to Mr Beer, with the only criteria being that they are new.

“We hear clients say all the time, ‘I haven’t made any major renovations so it’s probably not worth it’,” he said. 

“But there are definitely opportunities to claim that people don’t think about – some of those little things that you’re doing every few years can add up.

“It could be installing a new air conditioner, a pathway or a garden shed.”

Director at Edge Property Agents, Nick Brown said it’s important that property managers direct landlords to the best professionals to help them with topics like depreciation.

“Whenever we onboard a new landlord, we give them a PM proposal that touches on things like tax depreciation schedules.

“With depreciation, we tell them that 80 per cent of investors are missing on the tax side of things.

“We mention it as an agent and point them in the direction of a tax depreciator.”

Mr Brown believes that while it’s best-practice for property managers to make landlords aware of possible deductions for things like depreciation, he said it’s important they don’t give out financial or legal advice.

“Here in Queensland, our licensing doesn’t allow us to give out financial advice,” he said.

“If I was talking to a landlord I would be telling them to go and speak to a tax depreciator, their accountant and financial advisor.

“For property managers, it can be a fine line for what would be considered taxation advice and that’s certainly outside the scope of our licence.”

For landlords who have owned their properties for a long period of time, Mr Beer said there are still options when it comes to claiming depreciation.

He explained if a property was built decades ago or was purchased second-hand after legislation changes came into play in late 2017, it’s still possible to claim deductions. 

“It’s quite straight forward to amend two previous years’ tax returns with our schedules, but anything beyond this can get complex and come under tax commissioner scrutiny,” he said.

“So, it’s best to get on top of it early.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.