As October 31st fast approaches, many property investors who submit their own income tax assessment online could potentially miss out on thousands of dollars in unclaimed deductions.
Since the 1986-1987 financial year, Australia has operated a system of self-assessment of income tax.
As a consequence a significant number of Australian’s now submit self-assessed information when they lodge their tax returns each year.
This includes property investors making self-assessed property depreciation claims.
Although self-assessment makes it easier for individuals to lodge their tax returns, investors often lack the knowledge of complex tax legislation and particularly the rules surrounding depreciation deductions to ensure that their deductions are correct and maximised.
When self-assessing, the chances of an incorrect claim being made are increased and this can also increase the investor’s risk of being audited by the Australian Taxation Office.
To help investors to ensure they claim their depreciation deductions correctly, it is recommended they speak with a specialist Quantity Surveyor and arrange a tax depreciation schedule for their property.
Quantity Surveyors are one of the few professionals recognised by the ATO with the appropriate construction skills necessary to calculate the cost of items for the purposes of depreciation.
As part of the process of completing a schedule, a specialist Quantity Surveyor will perform a thorough site inspection of the property to take photographs of all of the plant and equipment assets contained within the property as well note any work of a structural nature which has been completed to the property.
A depreciation schedule will outline all of these deductions for the property owner to make their claim when they perform their annual income tax assessment.
Case study: self-assessed versus expert assessed deductions
The following case study looks at a property investor’s self-assessed deductions compared to the deductions identified by a specialist Quantity Surveyor.
The investor purchased a three bedroom house in an outer Sydney suburb for $610,000.
The property was constructed in 2004.
Deductions are based on a full financial year of ownership.
Depreciation deductions were calculated using the diminishing value method of depreciation.
In the first full year of ownership the specialist Quantity Surveyor was able to identify an extra $7,050 in depreciation deductions and an extra $28,200 in deductions in the first five years when compared with the owner’s self-assessed deductions.
The deductions found for the capital works (or the structural component of the property) were similar, however deductions for plant and equipment items (or removable and mechanical assets) were grossly underestimated or completely missed when the investor self-assessed.
The Quantity Surveyor used their specialised knowledge of depreciation legislation to incorporate methods such as immediate write-off to items valued $300 or less and low-value pooling to low-cost and low-value assets worth $1,000 or less to maximise the depreciation deductions that could be claimed for the investor.
No item is too small to consider including in a depreciation schedule.
The value of low-cost assets and low-value assets can add up significantly for investors, making the one-off cost to arrange the schedule more than worthwhile for investor.
The cost for arranging a tax depreciation schedule is also 100% tax deductible for the investor.