Tax Depreciation: Units vs Houses
Property Investors often ask why a unit obtains more depreciation deductions than a house. Whilst the depreciation difference is not always obvious between the two property types, it is worth investigating the reasons this may occur.
When calculating the depreciation deductions available in a property, items that are taken into consideration include property purchase price, settlement date, construction commencement and completion dates, land value (where relevant) and the plant and equipment items within the property.
Why does a unit usually attract higher depreciation deductions?
Units generally contain more plant and equipment items than a house. Not only can unit owners claim the items within their strata unit, like dishwashers, hot water systems and carpets, but they are also entitled to claim part of the common property. This includes items like driveways, pool pumps, outdoor furniture, lifts and common fire alarm systems.
The following example shows that when a house and unit are compared (with the same purchase price, construction completion date and settlement date), there is a difference of $15,000 in depreciation deductions over the first 5 years of ownership.
Note: When purchasing a strata unit there are other costs, such as strata fees, to consider as an ongoing cost of ownership.
Why engage a Quantity Surveyor to complete a tax depreciation report?
Specialised Knowledge and Expertise:
Quantity Surveyors are recognised under Australian Taxation Office (ATO) legislation as qualified to estimate construction costs for depreciation purposes. Accountants and real estate agents may sometimes estimate depreciation figures, but they do not have the construction cost knowledge or expertise to accurately determine the depreciation deductions available in an investment property. Most importantly, the ATO does not recognise their figures for inclusion in a tax return. Using the services of a quantity surveyor who specialises in depreciation, like BMT Tax Depreciation, will ensure the investor gets the maximum deductions available.
Accurate Record Keeping:
In the majority of cases, a site inspection will be undertaken in order to determine the maximum number of plant and equipment items within a property. Measurements, photos and notes are taken to supplement the depreciation report. If an investor is ever audited by the ATO, their depreciation claim will be supported by documented evidence as recorded at the time of inspection.
Fee is Tax Deductible:
Once you have engaged a Quantity Surveyor to complete a tax depreciation report on an investment property, any fee associated with the production of that report is 100% tax deductible.
Mortgage House would like to thank BMT Tax Depreciation Pty Ltd for this article.
If you are interested in purchasing an investment property, Mortgage House can assist you with the following:
- Investment loan (allows to you access the equity in your current mortgage to put towards purchasing an investment property)
- Interest only home loan – a popular choice amongst investors as it minimises impact on your cash flow.
- A visit from one of our friendly Mortgage House Lending Specialists to discuss your options.