1. What is a Tax Depreciation Schedule?
A comprehensive list of all the property allowances claimable under the Income Tax Assessment Act 1997 (ITAA 1997) prepared by a professional quantity surveyor recognised by the ATO as qualified to provide such information.
2. What is it used for?
The allowances are summarised in a yearly tax flow showing the amounts allowable as deductions in your annual tax return resulting in significant tax savings for each year of ownership of the property.
3. Who should obtain one?
Any investor or business who has purchased or constructed a building to produce assessable income.
4. What allowances are available?
The following allowances, where eligible, are summarised in a yearly tax flow showing the amounts allowable as deductions in your annual tax return resulting in significant tax savings for each year of ownership of the property.
4.1 Depreciating assets
Depreciating assets are claimable under Division 40 of the ITAA 1997. These include items such as air-conditioning systems, carpets, blinds and hot water units and are written off over a number of years based upon their effective life and industry category determined in Tax Ruling TR 2018/4. These are calculated from the settlement date of the property.
4.2 Capital works deductions
Capital works deductions are claimable under Division 43 of the ITAA 1997. These are based upon the historical construction cost of the property and vary depending on the commencement date of construction and type of building.
Non-residential properties such as offices, shops etc. can be written off at 2.5% per annum if building construction commenced after 15 September 1987. If construction commenced between 21 July 1982 and 15 September 1987 it can be written off at either 2.5% or 4% per annum depending on the actual commencement date.
Manufacturing properties can be written off at 4% per annum if building construction commenced after 26 February 1992. If construction commenced between 21 July 1982 and 26 February 1992 it can be written off at either 2.5% or 4% per annum depending on the actual commencement date.
If the building qualifies as short term traveller accommodation such as a hotel it can be written off at 4% per annum if building construction commenced after 26 February 1992. If construction commenced between 22 August 1979 and 26 February 1992 it can be written off at either 2.5% or 4% per annum depending on the actual commencement date.
4.3 Structural improvements
Structural improvements such as fencing, paths and other hard landscaping can be written off at 2.5% per annum if construction started after 27 February 1992.
5. But my commercial property is over 30 years old!
Although the capital works deduction is not claimable for any building constructed prior to 22 August 1979 the depreciating assets such as carpets, hot water units etc. are claimable from settlement irrespective of the building’s age.
In addition any renovations carried out after the eligible commencement date will qualify for the capital works deduction.
6. I have recently carried out renovations
If the renovations were carried out after purchase then a separate report will be required. Alternatively the receipts can be handed over to your accountant for them to claim separately.
7. How much will the schedule cost?
The fee for commercial properties is subject to individual negotiation based upon the property type, size and location. Please complete the online form for an obligation free quote.
8. What will my allowances add up to?
This depends on a number of factors including the age of the building, the purchase price paid and the extent and quality of the building and its components. As every property is different it is impossible to give an accurate indication without knowing this information.
9. But what if my allowances add up to less than the fee?
In this highly unlikely scenario M C Mars guarantees that no investor will be charged a fee if the first 2 years allowances amount to less than the fee.
10. How long does the schedule last for?
The fee is a one-off payment for a 20 year schedule which is far longer than most investors will hold their property.
11. When do I have to have the schedules updated?
Only when significant alterations or additions are made to the property. Your accountant will be able to look after most items of additional future expenditure such as new blinds, carpets etc.
12. Why can’t my accountant prepare the schedules?
Only appropriately qualified persons such as quantity surveyors are allowed by the ATO to estimate construction costs in order to calculate the building allowances claimable. The ATO does not allow real estate agents or accountants to perform this task unless they are otherwise qualified.
If the value of depreciating assets is not included in the sales contract then the ATO requires an independent valuation to be carried out by a person such as a quantity surveyor.
13. What happens when I sell the property?
The ATO requires that the selling price is apportioned between the depreciating assets and the property. The cost base is reduced by the amount of the capital works deductions you claimed or were entitled to claim. Even if you don’t claim the allowances available to you then the ATO may take these into account when calculating capital gains tax.
A separate balancing adjustment is made on the depreciating assets which represents the difference between the asset’s termination value and its adjustable value at the time of the sale.
The Tax Depreciation Schedule prepared for the purchase of the property will greatly assist in determining the tax liabilities at the time of sale.
14. I haven’t previously claimed any depreciation
The ATO allows you to request an amendment to your tax return, generally two years for individuals and small businesses and four years for other taxpayers. You can therefore backdate your tax claim to take account of your depreciation allowances accordingly.
How do I obtain a quote for my schedule?
Simply download the form from the following link and return the completed form by post or email and I shall provide you with a quote as soon as possible.
Download M C Mars Commercial Tax Depreciation Schedule Form
PDF - 24kb (Requires Adobe PDF Reader)
I look forward to assisting you maximise the returns from your property investment.
Malcolm C Mars MRICS