Depreciation on existing house ?

Hey Team
Questions

Looking at purchase an existing house in a strata estate WA.
Built Circa 2013

I want to find out with new rules what can be Depreciated?
We used to a depreciation schedule on purchases prior not sure what has changed now?

 

You can still claim the building at 2.5%.
The depreciation on the Assets should be noted, but you can't claim it until you sell the property - it is used to reduce the CGT. So the Asset depreciation is in a sense deferred.
Any brand new Assets you add can be depreciated.

 

Hi, I purchased an existing house after the new depreciation laws kicked in. Just wondering how they work. I had a depreciation schedule (with depreciator) purchased/done on the property and when I went to my accountant at tax time. He said I could no longer claim anything and the only thing I could claim was the purchase of the depreciation document.

How does the new law work? Where can I find out more information on this? Little confused as to why I actually need this document and if there was any point in purchasing it. Thanks

 

Normally a pre-budget (May 2017) property can claim Div 43 and Div 40 deductions but for those acquired after that date only Div 43 is available. I have never seen a Nil deduction QS report issued as most QS firms dont charge a fee if there is no deduction benefit. That said, there were some properties acquired pre-budget that failed the test for having rent in the period up to 30 June 2017. In which case the QS report showing Div 40 is now invalid. That said the amount NOT deductible mays till refelct a CGT benefit in later years. The QS can modify the report if you are affected. Dont just ignore the deductions !! Its like throwing away $$$

Did the accountant explain all that ? If not, they have only done part of their job.

Speak to the QS about your concerns.

 

I would be getting on the phone now and talking to Depreciator to see what's doing. The person I would ask for is Scott.


Hey, that's me.

 

Awesome, thanks Scott. Will get in contact with you soon

 

Doesnt seem not quality tax advice to just say you cant claim anything. Understanding why and the alternatives like the deferred CGT benefits / Div 43 etc are important too. I have never seen a $0 value QS report issued by a reputable firm and I include Depreciator in that list so I suspect there are benefits in the QS you had prepared. Perhaps some will benefit later ?

I have seen some bad tax advice too which has told owners of property acquired after the budget change that they cant claim anything...Even Div 43. Thats incorrect.

Scott should sort this out but I question why the tax adviser isnt more helpful

 

I am assuming he's not property savvy perhaps? That's just my assumption.

 

Yesterday I talked to a tax agent who was building a new residence and planned to live in it for a year. She thought that, because it was new property, she would be exempt from the changes, and somehow missed the part about it having to be an investment from the beginning of its life onward. Some depreciation schedule providers out there (nobody who posts here, as far as I know) don't seem to be aware of it either.

The point being that it's still quite a minefield, I guess.

 

Not that uncommon I'm afraid. Not hard for the ATO to pick up too.

 

A tax adviser that needs a tax adviser.

 

Just in case BeeChrys doesn't post the outcome...

He/she emailed me with our job number.
The accountant is confused - phew.
There is $2,305 per year to claim on the building until 2043.
The depreciation on the Assets needs to be deferred because the property was purchased well after the rule changes come through.

 

Hi. I've got a tax depreciation scheduled this month for my IP from BTM
BTM agent said I got another 17 yrs to claim and I intend to ask them a few questions.

1. Do I need to do a tax depreciation every year as I have an ABN number.
2. Can I be able to maximize my tax depreciation by fixing something to the established house or doing some renovation like
. installing a front fence
. extending the single garage in front by a carport
. repainting the whole house and
. other stuffs

I want to maximize my investment by fixing the house. Is it worth doing so?

I also want to build a house on my titled land because I know I will get a better tax depreciation than the established house. Is it true?

 

Wow.

You dont have it right. Get advice

I dont understand how a ABN ever comes into this

 

Spend $1,000 so you can get a deduction of $25?

 

It's the reason why I ask to see wether I should claim tax depreciation every year similar with the case for people paying GST.

When you have an ABN you could claim depreciation almost on everything.

I don't know how much I get back for my tax depreciation items but It will definitely reduce the taxes on my personal incomes overall.

$25 out of 1000 is ridiculous based on my car depreciation which was about one fifth of the purchased value.

It's also a reason why I ask should I invest more on an old house or to build a house to maximize my investments for my tax purposes

 

Having an ABN doesn't mean you can claim any more or less than not having an ABN

why is $25 out of $1000 ridiculous? We are talking property here not cars.

 

The ABN isn't relevant as far as I can see, but you don't need to order schedule yearly.

Most of those are Division 43 capital works, which means they have a forty-year lifespan. As you've seen above, that equates to only a small amount (2.5%) of the total cost yearly as a deduction. If you're looking to maximise deductions, you have to spend a lot on capital works. Division 40 plant and equipment items will get you relatively higher deductions (due to their shorter lifespans), assuming you're eligible to claim them. Perhaps that's what you were referring to with "other stuffs".

Fixing, as in repairing? Talk to a tax agent to work out what can be claimed here--it is less straightforward than it appears to most people at first. Fixing up, as in improving a property? That's depreciation/capital works allowance.

Yes. Construction costs are indexed historically, so newer is generally better. Plus, if it's an IP from day one then you'll be able to claim on all of the plant and equipment items.

I think I'll leave this to others to address.

Perhaps. Lifespans are arbitrary by definition. Why do kitchen cabinets and bathroom tiling both have the same unlikely lifespan of forty years: that of the structure of the house itself? The ATO works in mysterious ways.

 

A related question, I was reading about who can actually claim Div 40 as per new laws. One of the condition says that Div 40 can still be claimed for

• Investors who purchase a newly-built investment property as the first owner;

What does "first owner" mean here? Is it the first owner of the property being purchased OR does it mean that the investor should not have owned any property before (first home owner)?

 

First owner of the property.

 

I'm into the market for next IP and one of my main selection criteria is the amount of deductions that can be claimed as I pay a ton of tax every year. I know there are so many factors to be considered when choosing the IP e.g. location, long term appreciation, etc. But I want to approach this property from maximum deductions standpoint as my philosophy is that money in the pocket is the real money. The sooner you get it (e.g. through tax saved over next five years), the better. Rest all (long term capital growth) is a dream, a bubble.


I was reading BMT's blog where the author has said that Div 40 only accounts for 10-15% of total depreciation (rest being Div 43). What the author has not specified is the time period he used for this comparison (5 years or 40 years?)

Because items under Div 40 depreciate faster i.e. shelf life (2-5 years), so their tax benefits are generally realised quicker, I would have thought the during the first five years Div 40 would account for a larger share (25-30%) of depreciation.

I guess what I am asking is that would't it be a bad strategy to buy a existing house (even if 2 years old only) and miss out on Div 40? Especially when the main motivation to buy the IP is to save those tens of thousands being lost to tax.

 

Deductions alone for Div 40 may comprise little of the overall deductions against income. The age of the construction (Div 43) for example could produce deductions between $0 for a very old property and $8k pa for a new apartment (for each of 40 years). A newer property may have Div 40 of around $40K over 10 years with much of that in the first 6. Then the largest deduction for many will be interest. A highly geared property (100% LVR) costing $800K may achieve higher interest of an extra $8K pa vs one leveraged at 80%...Far larger than Div 40 and perhaps Div43 combined after a few years.

The Div 40 deductions are not lost as such. There has for some time been a clawback of sorts in the past and that shouldnt be ignored.