People often tell us about the renovations that have been done to their investment property, after they have bought an old property:
“I’ve refurbished the bathroom, completely renovated the kitchen, polished the floorboards”, renovated the bathroom, placed a pergola at the back and so forth.
There is some confusion about how renovations are treated for tax purposes.
If the renovations and repairs have been done after the date of settlement then the receipts for these costs go directly to your accountant to take care of and are not included in your tax depreciation schedule.
If they were done before settlement (by previous owners) then they are part of the price you paid for the property. They would then be automatically included in your depreciation schedule if applicable.
An important distinction exists when purchasing a residential property with a construction completion date preceding 18 July 1985. (Dates for business properties vary, so to keep it simple we’ll stick with residential).
Any renovations completed after that date are eligible for Div. 43 Capital Works allowance.
Any renovations completed before that date are not eligible for Div. 43 Capital Works allowance.
So if you are buying a pre-1985 residential investment property that has been renovated since then, it is good to try to find out as much as possible about what the renovations and repairs consist of and the associated costs, because you can claim the depreciation allowance as part of your tax deductions.
A tax depreciation specialists that prepares the report will ask preliminary questions to ascertain if they need to do an onsite visit, usually for older properties, for newer built properties a tax depreciation specialist will obtain all the information needed from the project developer or builder.
There is two sections of the rental schedule that you will depreciation, one will be for capital works, this capital works is based on prime Depreciation over the useful life of the building and the same amount of deprecation over 40 years Is calculated. The next section is for fixtures and fittings this depreciation usually will last between 10 and 15 years, as the property ages your depreciation will reduce with time, a capital gain and or loss will be triggered if you sell the property or you inherit the residential or commercial lot in question.
We use and recommend BMT Tax Depreciation Specialists for all our tax depreciation reports.
Tax Accountants Sydney usually will not be able to depreciate these types of items as you need a tax depreciation specialist to look at the property and assess it, however your tax accountant Sydney will be able to depreciate once off items like new kitchen etc within your tax return, at Australia Wide Tax Solutions this section is usually charged at $77 per year as there tax depreciation schedule will usually roll forward from previous years.
When it comes to grouping all assets its best you provide a tally of items per room and have all receipts available in regards to a tax audit by the Australian Tax Office. A collective amount per room will provide an easier sum to be included in your depreciation schedule via your tax return.
We are always available to talk in regards to depreciation if you have any questions book a time to speak with here. Contact us