Tax Depreciation Landscaping Improvements

Depreciation of Landscaping Improvements within Rental Properties

Here’s why:

Tax depreciation is broken into two categories

• Capital Works (division 43)
• Plant and equipment (division 40)

But since the new depreciation rules came into being on 1 July 2017 plant and equipment deductions only qualify if the item is brand new.

No more claiming tax deductions for second hand items. Even if they’re only 6-months old

This is not the case with capital works… like landscaping.
Brand new, a few years old, or even mids 90’s. It doesn’t matter. So long as it was built and installed after 26 February 1992, you can claim it as a tax deduction.

External Capital Works is broken into several subgroups, as follows:

Soft Landscaping Depreciation

Soft landscaping cannot be claimed as a yearly depreciation deduction within a tax depreciation schedule.
That’s because the ATO says they (plants) grow and get bigger. Making them an asset, not a liability.

But…

My caveat:
If you have to cut down some greenery, replant some shrubs or even just mow the grass as part of the general maintenance of your rental investment property… then you can claim these expenses as Repairs and Maintenance items.
And at 100% instant asset write-off to boot!

What is Soft Landscaping?

It’s basically anything that grows… with the addition of mulch, gravel paths and potting mix.
Here’s a few examples of what I see in virtually every rental investment property:

• Hedges
• Lawn
• Screening trees
• Potting mix in pots
• Garden mulch
• (Occasionally) water plants in water features

Hard Landscaping Depreciation

There’s an almost endless list of hard landscaping items that are considered tax depreciable.

Here’s but a few of them:

• • Fencing
  • Retaining walls
  • Paving
  • Concreting
  • Driveways
  • Garden sheds
  • Inground swimming pools
  • Carports
  • Patios
  • Shade sails
  • Letterboxes
  • Clothes lines
  • TV antennas

And more…

Fortunately for your quantity surveyor, they all fall into the Capital Works category, division 43. Meaning they all depreciate at the set rate of 2.5% pa.

This calculation for yearly deductions is based on the original fully installed price x 2.5% pa.

Example:

Say you spent $10,000 on a new retaining wall along the side of the house. Back in 2010.
This $10,000 can be claimed at 2.5% pa ($250) each and every year, until the year 2050 when the item has been fully depreciated.

Note: You can only claim tax deductions on these items while you are using the house as an income producing property.

Playground Depreciation

Children’s playgrounds are another landscaping item you can claim as a tax deduction.

But it depends on if the playground is ‘fixed and in position’ or ‘free standing’.

If freestanding: the playground would have to be brand new to be a viable tax depreciation item, as it falls into the Plant and Equipment category. Not the Capital Works category.

If fixed to the ground: the playground is considered a permanent structure and falls into the division 43 and can be claimed at 2.5% pa until the item is 40-years old.

Fence Depreciation within Rental Property

I can’t think of a property I’ve inspected (other than on North Stradbroke Island) that hasn’t had at least one section of fencing.
And fencing is very much a landscaping item. This means you can claim anytype of fencing – whether it be simple dogwire and Star pickets, post and rail, glass pool fencing or rendered blockwork – as a tax deductible item.

All it needs to qualify is to be newer than February 26, 1992.

Today, a typical timber panel fence around a small house lot will cost $150/m.
That could be around 70m of fencing totalling more than $10,000. And at 2.5% pa that’s $250+ per year in tax deductions.

Automatic Gate Openers

Auto gate openers and intercom systems are not claimable under division 43, as they are considered to be Plant and Equipment items.

So, the only way you can claim tax deductions for them is if they’re brand new, or you own the property in a company name. More on that here

Older Landscaping Depreciation:

Older properties often have a lot of yard work done to them.
And so long as this work was carried out after 26 February 1992, you can claim it as a tax deduction. Even if you didn’t pay for them!

If the previous owner spent money on Capital Improvements like driveways, garden edges, retaining walls, even garden sheds, you can claim those costs in your tax return.

All you need do is have the Quantity Surveyor assess and calculate the original installation costs for these items.
We will then incorporate the costs into your tax depreciation schedule to ensure we maximise your annual tax refund

How much tax you save will ultimately come down to how good your quantity surveyor is at ferreting out all the deductions and a great accountant helps too!

To find out more about the potential tax savings sitting in the backyard of your investment property, simply get in touch with me personally and I’ll give you a free eyeball assessment of your potential tax savings.

You can also find a lot more helpful info about your potential tax savings by checking out our home page.

But:

If you found this helpful, you may also find some of my other articles beneficial too. And to see some real life examples of what our clients have been receiving in tax depreciation deductions, check out our Client Portfolio page.

This article was written by William Callaghan A.A.I.Q.S.
2nd generation Quantity Surveyor and founder of WRC Quantity Surveying

Published January 2023