Are Tax Depreciation Schedules for Older Investment Properties Worth It
If you own an older house you may be wondering if it’s worth getting tax depreciation schedule calculations prepared.
Most investment property owners who hold an older property are hesitant to get a tax depreciation schedule prepared.
From what I’ve experienced it’s because they’ve been told older houses aren’t worth getting a tax depreciation inspection carried out
That may be true.
Infact, for certain properties it is 100% accurate
But for the bulk of property investors, the tax depreciation cost is far exceeded by the tax deductions on offer from the ATO.
That’s because virtually every property over the age of 10 has many thousands spent on repairs, maintenance and improvements.
Most of which is claimable as a tax deduction in the depreciation schedule.
Here’s a few examples of what a typical tax depreciation investment property (that’s a little older) has to offer in depreciation schedule calculations.
Division 43 (structural items)
Driveway and Paving
Garden Sheds and Patios
Fencing and Retaining Walls
Electrical and Plumbing Upgrades
Renovations (post September 1987)
Inground Swimming Pool (post February 1992)
Original Construction Costs (post September 1987)
…and many more items
Division 40 (plant and equipment items)*
…and many, many more
*note: div 40 items are only claimable in a tax depreciation schedule ATO if the items were purchased brand new (solely for tenant use) or if you own the property in a company name.
The rule of thumb
If we can find $40,000+ in capital works (div 43) items – newer than September 1987 – then you’re a good candidate for saving more tax.
Simply put: Investors with older houses are paying too much tax.
It’s a common blunder virtually everyone makes but means they’re missing out on tens of thousands in tax savings…
“My house is old…is it still worth doing?”
…Yes! Old property is worth doing.
And can even be more worthwhile than many newer properties!
Let me explain…
A lot of developers and property experts say old houses are terrible for tax saving… and all the ‘big tax deductions’ are found only in fancy new homes.
But as the saying goes…putting salt in my tea won’t make yours any sweeter.
And developers have a vested interest in pushing new stock.
After all, they sell new houses – not old ones.
Even some accountants say older houses aren’t worth doing…and it blows my mind.
Wouldn’t it be better for their client to save a few hundred extra in tax each year, than to let the ATO collect it and lock it away in their coffers?
Regardless, older properties have mountains of depreciation in them…if…assessed properly.
Plus their Capital Growth almost always beats the pants off new houses!
And I can say that with confidence…
Over the past 15-years I’ve seen older houses prove their worth time and time again.
When assessed properly, older houses have bucket-loads of hidden tax savings unlocked and turned into cashflow for the owner.
The key to getting more of your tax back from the ATO
The big tax depreciation companies are volume based providers.
But churning out 50, 100, 200…even..350 reports – per day – is not conducive with maximising tax savings.
…And you want to take advantage of every tax deduction entitlement available.
So you need someone very highly skilled – on-the-ground – inspecting your property.
- a ‘tick sheet’ guy with two days training
- a building and pest guy doing it on the side
- even a junior Quantity Surveyor just cutting their teeth
You want someone who knows old houses backwards.
…Like a 2nd generation Quantity Surveyor.
But high-volume companies simply don’t have that many skilled Surveyors on staff.
…quantity surveying is a small profession… with just 60 or so new graduates nationwide each year.
and with so many multi-million dollar construction projects going on – there’s probably not even enough skilled QS’s in the country to fill the ranks just at BMT tax depreciation.
That’s precicely where owners of older properties are losing thousands of dollars each year in unclaimed tax deductions.
“If big tax depreciation companies truly wanted to ‘help investors maximise their tax savings’…why do they shy away from the harder, older properties – when there’s plenty of savings to be found?”
“Depreciating old houses is an art in itself”
And only a handful of Brisbane tax depreciation providers have the right balance of skills and time to handle them competently.
Yet many companies can’t – or won’t – put in the time and overheads to get clients the best result.
They simply fob them off.
After all, they want the easy jobs with higher profit margins…less work and less skill needed.
…And this is perhaps where the thought pattern that old properties aren’t worth doing comes from.
But I do know how to ‘milk’ an old house of every-cent of tax deductions
There’s a simple yet often overlooked trick to it…
That is…send a very experienced Quantity Surveyor to your house to do the inspection.
That’s what dad and I have been doing since 1994.
It seems simple…
Like meat and three veg for dinner
And just like meat & 3-veg will guarantee a healthy diet, having a qualified Quantity Surveyor Inspection of your house guarantees you’ll pay minimal tax.
And it guarantees you and your accountant won’t get a tax depreciation ATO audit because of a dodgy depreciation schedule.
“But I can’t do every job that comes my way”
Otherwise I’d become one of those volume based companies- fobbing off the harder jobs to make way for multiple easy ones.
So I cap my intake at 13 jobs per week.
That’s just 3 per day and a half day on Fridays for bookwork.
For more examples of what a tax deprciaiton schedule can do for older properties check out our client Portfolio
Alternatively, you can get your free quote by contacting us here
Still got some questions?
Hopefully these FAQ’s will help…
QUESTION: How do you find more tax deductions in my property than the other guys?
It all comes down to the onsite inspection.
Without really high level knowledge of historical construction costs and design trends, an inspector simply can’t identify all the deductible items or their value.
And to do that it takes someone with a lot of experience. Otherwise, they walk right past deductibles.
Meaning you miss out on tax savings.
QUESTION: How will you know my property is ‘worthwhile’ doing before I spend any money?
Along with my quote I’ll also provide an eyeball estimate of what you can expect to claim in depreciation deductions.
I do that by researching your property online.
Yes, this takes me a little while to put together your tailored quote – but it means you know exactly what you’re going to get.
QUESTION: How soon do I need to get the report sorted?
The sooner the better…
Ideally, you’ll have the property inspected just before tenants move in.
But, that doesn’t always happen. And that’s ok.
We work with your tenants.
However, you don’t want to dawdle.
Recently the ATO put a time limit on when you can claim for older tax returns.
Basically, leave it even a day too long and you could miss out on an entire years worth of tax deductions!
QUESTION: Can I claim a tax deduction for my report?
Yes! Our fee is a tax deductible cost – just like your accountants fee.
So even the cost of the report adds to your deductions.
QUESTION: How often do I need to do the report?
We will prepare the report and it will last 40-years.
Why so long?:
The ATO says a building/structure has a useful life of 40-years. So that’s how long our reports run for.
2.5% pa x 40 years = 100%
…Of course, if you do major renovations you’ll probably need to have the new works assessed too. Otherwise you may miss out on extra tax savings.
This article was written by William Callaghan A.A.I.Q.S
2nd Generation Quantity Surveyor and founder of WRC Quantity Surveying