Depreciation is boring unless you’re not claiming it!

Posted by Fiona McGovern

When people say that they want to talk to you about tax, most of us would roll our eyes and switch off. I know it can be a boring subject, but stick with me, I promise there is some good stuff in here for you, and if you’re not already benefitting from this, it’s going to mean a lot to you!

Depreciation is the second largest tax deduction available for property investors, second only to your bank interest payments. But, with depreciation, you don’t have to pay it out in cash before you claim it as an expense.

What is depreciation?

In simple terms, depreciation is the estimated reduction of value. So, something that is worth $10 today may be worth less tomorrow. Think cars. You buy a new car worth $50,000. As soon as you drive it out of the showroom, it’s considered to be worth less. It has depreciated in value.

In property, depreciation relates to the natural wear and tear on your property.

There are two types of depreciation:

Division 43 relates to the structure and items that are permanently fixed – these are windows, doors, and kitchen cupboards.
Division 40 covers all the non-fixed items – these are blinds, light fixtures, and hot water systems. Division 40 items are only able to be claimed by the first owner, which is one of the many reasons why we recommend our clients buy new ones.

With over 6,000 items in an average property being depreciable, you need to be somewhat of an expert on it all! No doubt, it could feel overwhelming when contemplating how to claim depreciation.

But it’s not that hard. All you need to do is engage a good Quantity Surveyor, who will inspect your property and create a very detailed report that you can give to your accountant to use when finalising your tax return. And you only need one report for the entire time you own the property.

If you haven’t provided a depreciation schedule to your accountant yet, you could be missing out on around $4,000 in a tax refund (based on a property valued at $500,000 and a 30% marginal tax rate)!

If you’ve never ordered a Depreciation Schedule, it’s not too late. We recommend BMT Tax Depreciation Quantity Surveyor as we have found them to be the most thorough and detailed reports. For any property purchased through Blue Wealth, BMT offers a heavily discounted rate, so please order this through your microsite.

The ATO has different lodgment dates depending on the type and size of the entity that owns the investment. Make sure you check with your accountant for the due date to lodge your tax return.

And now that you know, you can go back to thinking depreciation is boring because it is until it’s not!

Posted by Fiona McGovern, on 9th May 2023