maximising the total depreciation available from a given property under current legislation.

→ BMT are provided with investor purchaser details so we can send them information

about depreciation; or

→ BMT settlement letters are provided and they can be passed onto the investors directly.

To complete a tax depreciation estimate the following are requested (if available):

→ Purchase price list;

→ Copy of strata plan (or draft);

→ Schedule of finishes/list of inclusions; and

Phase A Tax Depreciation Estimates & Phase B Full Tax Depreciation Reports

How the Documents Work 

• BMT Tax Depreciation complete a Phase A tax depreciation estimate for a specific development, prior to, or during marketing phase
• Investor purchases the property
• BMT Tax Depreciation provide information to be included in settlement documentation for purchasers, including an application form and brochure.
• After settlement, the purchaser engages BMT Tax Depreciation to complete a Phase B tax our prior knowledge of the project.
• Phase B tax depreciation report contents are used in purchaser’s tax return preparation

1. If my property was built before 1985, is it too old?

No. It is worth noting that:

→ Your investment property does not have to be new: Both new and old properties will attract some depreciation deductions. A common myth is that older properties will attract no claim.

→ You can adjust previous year’s tax returns: When a property owner has not been claiming or maximising tax depreciation deductions, the previous four financial year’s tax returns can generally be adjusted and amended. Please note, the adjustment period was recently amended to become a 2 year period.

→ Note: if the deductions are not high enough to make it feasible to complete a report, we will not proceed.

2. Why is plant and equipment itemised?

The ATO specifies an individual effective life for each plant and equipment item. Consequently, our reports show the estimated cost for each item and its contribution to the depreciation total per financial year. The original building structure and capital improvements, or Division 43, are all written off at the same rate (unless building works have been completed over different legislation periods).

Therefore individual costs for these items aren’t expressed in the report. If required by the ATO, the estimates for Division 43 can be justified.

3. Why does the depreciation and capital allowance schedule only last 40 years?

From the date of construction completion, the ATO has determined that any building eligible to claim the building write-off allowance has a maximum effective life of 40 years. Therefore, investors can generally claim up to 40 years depreciation on a brand new building, whereas the balance of the 40 year period from construction completion is claimable on an older property.

4. Can I claim renovations completed by the previous owner?

Yes. Anything in the property that is part of a previous renovation will be estimated by our quantity surveyors and deductions calculated accordingly. This includes items that are not obvious e.g. new plumbing, water proofing, electrical wiring etc. For capital improvements to qualify for the Division 43 building write-off allowance, they must have commenced construction within the appropriate Division 43 time periods.

5. What information do I need to provide?

Information BMT require to produce a Tax Depreciation and Capital Allowance report includes the following:

→ Date of settlement

→ Purchase price

→ Access details for inspection (E.g. property manager or tenant details)

→ Any information pertaining to improvements or additions made to the property including dates and actual costs (where available)

→ The date the property became available for income producing purposes.

6. What is the difference between plant and equipment and the building write-off allowance?

Plant and equipment items are items that can be ‘easily’ removed from the property as opposed to items that are permanently fixed to the structure of the building. Plant items also include items that are mechanically or electronically operated, even though they can be fixed to the structure of the building. Plant and equipment items include (but are not limited to):

→ Hot Water Systems

→ Carpets

→ Blinds

→ Ovens

→ Cook tops

→ Range hoods

→ Garage Door Motors

→ Door Closers

→ Freestanding Furniture

→ Air Conditioning Systems

The building write-off allowance (otherwise known as Division 43) is based on historical building costs and includes things such as the bricks, mortar, walls, flooring and wiring.

7. Who is qualified to estimate construction costs for depreciation purposes?

Quantity Surveyors are one of the few professionals recognised by the ATO to have the appropriate construction costing skills to calculate the construction cost for the purposes of building depreciation.

BMT & ASSOC also prepare cost plan estimates for all types of buildings. Construction costs are estimated in today’s market and historically adjusted to the year of construction using cost indices.

8. What is pooling?

A low value pool exists providing investors the benefit of pooling items that meet either of the following classifications:

Low Cost Pool - A low cost asset is a depreciable asset that has a cost of less than $1000 in the year of acquisition.

9. How do you work out how old the building is?

The age of the building can be determined by obtaining council documents with dates pertaining to the original application approval date or the Occupancy Certificate date and final inspection date.

Similar methods are used Australia wide, however some properties are privately certified. BMT & ASSOC conduct the relevant searches required to accurately determine the age of a building. These include historical council searches regarding lodged development applications, as well as Occupancy Certificates and certified final inspections.

10. What does a BMT Tax Depreciation report contain?

A detailed 23 page schedule includes the following components:

→ A method statement;

→ Schedule of Diminishing Value Method of Depreciation;

→ Schedule of Prime Cost Method of Depreciation;

→ Schedule of pooled items for the property;

→ Lists all Division 43 (10C & 10D) allowances available from the property;

→ Detailed 40 year forecast table illustrating all depreciable items together with building write off for both Prime Cost and Diminishing Value methods;

→ Comparative table of the two methods of depreciation;

→ Common property items within strata or community title complexes such as lifts and swimming pools are included in the depreciation report for a unit in a multi-unit development;

→ The report is structured to facilitate the client to be able to amend previous years’ returns to re-coup unclaimed depreciation benefits; and 

→ The report is pro-rata calculated for the first year of ownership based on the settlement date so that the accountant has the exact depreciation deductions for each year. The report will ensure maximum depreciable items are identified and will take into account the pooling of low cost and low value items. It is valid for the life of the property, until capital improvements are undertaken or ownership changes.

In terms of depreciation, what should you consider when making an investment property purchase decision?

If you are looking to purchase an investment property, it is worthwhile asking yourself a number of questions. While many investors consider location, purchase price and tenanting ability when contemplating an investment property purchase, they often overlook depreciation as an important factor. Depreciation can help unlock the cash flow potential within an investment property, often meaning the investor will have thousands of additional dollars each financial year.

There are several factors for consideration that will enable the property owner to maximise tax depreciation benefits including:

→ The age of the property: Both new and older properties will attract some depreciation

deductions, although a property with an age between 1-20 years will provide higher depreciation than an older property.

→ The type of property: If the property is part of a strata complex or community title

development, each unit is entitled to claim common property benefits in addition to the unit’s depreciation benefits.

→ The amount of common property: Common property items within a strata or community title complex such as lifts and swimming pools are included in the depreciation report. The more common property there is, usually results in higher depreciation claims.

→ The amount of plant and equipment: Plant and equipment are items that can easily be

removed from the property as opposed to items that are permanently fixed to the structure. Plant and equipment includes items such as light shades, stoves, air conditioning systems, blinds and carpet. These items can be depreciated at a higher rate and add significantly to the depreciation claim. More plant and equipment generally means higher depreciation claims. Once you have purchased an investment property, what can you do to increase your depreciation deductions?

In order to maximise the tax benefit your investment property will attract, you will require the services of a recognised Quantity Surveyor with specific property tax depreciation skills and experience. To ensure you claim all your entitled depreciation deductions a site inspection will need to be carried out as this will accurately identify all items of plant and equipment. These specific items attract higher depreciation rates than what is applied to the building. An over-capitalised property with more expensive fittings such as ducted air conditioning and stainless steel oven, cooktop and rangehood will have a higher depreciation claim than less expensive fittings such as split system air conditioning and an upright stove.

Example: Tiles vs. Carpet

To obtain the highest depreciation claim when removing old carpet, should it be replaced with tiles or new carpet?

Note: This does not include scrapping of the original carpet.

Replacing the old carpet with new carpet in lieu of tiles will attract a higher depreciation rate of 20% using the diminishing value method, opposed to the tiles attracting a rate of only 2.5%. In both cases you will obtain depreciation but in this case it would be beneficial to the property owner to replace the old carpet with new carpet in order to obtain a higher return. BMT Tax Depreciation are specialists in maximising depreciation claims and can provide advice about any property scenario.