Tax Depreciation Insights - No. 1
Article written by Anthony Ellwood - Summit Quantity Surveyors
New Versus Old Which is Best?
At Summit Quantity Surveyors we are often asked which type of property will generate the most amount of depreciation, newer properties or older properties. The simple truth is that new is best, but don't despair if you have recently purchased an older property as there are still generous amounts of depreciation benefits on offer for these properties as well.
To fully understand why this is the case, first let me explain how Tax Depreciation works. When we analyse a property for depreciation we need to complete two quite different calculations, namely:
1. Capital Works Allowance calculation (Division 43 deduction)
2. Tax Depreciation Deduction on Plant & Equipment calculation (Division 40 deduction)
The Capital Works calculation is an estimate of how much the property cost to build, at the time it was built. This is not a market valuation or a replacement cost estimate, but an estimate of the historical construction cost of the property. This is the main reason that new is best, as newer properties generally cost more to build than older properties. A four bedroom house built in 2016 is always going to cost more than a similar property that was built, in say 2002.
For this component of Tax Depreciation to be claimable, the property must have started construction after 16 September 1987. The second series of calculations undertaken is that on the plant and equipment located within the property, such as carpets, blinds, whitegoods, hot water units, etc. This cost is based upon the cost to the taxpayer which is quite different to the Capital Works calculation which is based upon the historical cost. This cost is based upon the age of the item, its condition and a series of other pertinent factors that our Quantity Surveyors will take into account following completion of a site visit to the property. This component of Tax Depreciation is claimable irrespective of the age of the property.
So as you can see, new is best, but don't disregard older properties as there is still a sizeable amount of depreciation entitlements to be claimed. And if your older property has been renovated, then those renovations are claimable by you irrespective if they were completed by a previous owner.
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