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Are you depreciating commercial fitouts correctly?

An overhead shot of a man and a woman at a desk looking at a laptop with Depreciator's website open. Office fitouts can be tricky but can yield great depreciation for your clients.

Chances are you’re not.

Some of them even we find tricky, and we have been doing Depreciation Schedules for over 20 years.

If you aren’t doing it properly, your clients might be missing out on deductions.

Sure, if it’s just a small factory and the client has just installed a mezzanine and some racking, that’s easy.

But what if it’s, say, a $900K office fitout that involved some demolition and there is a landlord contribution in the mix and the landlord also wants a Depreciation Schedule. That’s a job that just came in today for us.

Key Points:

  • How we approach a Depreciation Schedule for a fitout for one of your clients.
  • If your client has bought a building with an existing fitout and decides to demolish that fitout, they should be able to claim the disposal value of any Capital Works they discard.
  • When the landlord makes a contribution to the fitout, it makes sense to ascribe as much of the Capital Works as possible to the landlord.

A woman smiling at her client as they work on a project. Depreciator will work with your client to understand the total spent on the fitout and what the landlord owns of that fitout to create a Depreciation Schedule.How do we approach a depreciation schedule for a fitout?

Here’s what we do:

  1. First up we find out the total spend on the fitout and get whatever breakdown is available for the Capital Works and Plant and Equipment.
  2.  Then we get a contact at the fitout company to help us break down the P&E further.
  3. Next we ask whether there was a landlord contribution and whether there were any conditions around it (and whether the landlord also expects a Depreciation Schedule).
  4. And of course we find out whether we are including GST in the costs and whether one or both entities want the Instant Asset Write-Off employed.
  5. Then we send a Quantity Surveyor there.

That’s what it takes to do them properly, so isn’t it good that you don’t need to do all that? All you have to do is refer your client to us using your link and we take over.

Let’s look at some other fitout conundrums:

What if your client has bought a building with an existing fitout?

This one happens all the time with offices and shops.

Your client might not be intending to occupy the property, but they will want to make the most of any deductions available.

If there is a tenant there and they did the fitout, they would be claiming it. But what if the landlord made a contribution to that fitout? Nobody ever thinks to dive that deep.

What if it’s vacant possession and the fitout was left behind by the tenant? Your client bought that fitout when they bought the building and should be able to depreciate it.

But what if your client decides to demolish that fitout so they can present prospective new tenants with an empty shell? They should be able to claim the disposal value of any Capital Works they discard. There is often good money thrown into skip bins without anybody realising.

We always tell clients to talk to their accountants before they do anything to a property. And you in turn might want to talk to us.

An office space with an industrial feel. Lage pendant lights hang from the ceiling in front of a green wall. If a fitout has a landlord contribution, chances are the landlord will also need a Depreciation Schedule.How best to deal with a landlord contribution?

Just about every fitout Depreciation Schedule we have done in the last year for office in the capital cities has had a large landlord contribution in the mix. Presumably it’s what landlords need to do to entice businesses into leases after Covid. Prospective tenants right now are spoilt for choice.

And in every case, those landlords have expected the client to provide them with a Depreciation Schedule as a condition of handing over the money.

It’s always best we know this up front. With the fitout job that came in today, of that $900K total, the landlord generously (but probably with little choice) chipped in $300K.

It makes sense to ascribe as much of the Capital Works as possible to the landlord. That’s the walls, glass partitions, fixed floor treatments, ducting etc. Then the client gets to claim the majority of the Plant and Equipment i.e. the stuff that depreciates quickly. It often surprises us that when landlords hand of significant incentives, they don’t stipulate what work it is to be put against.

News on the Instant Asset Write-Off

There is no news on the Instant Asset Write-Off.

It’s still stuck in the Senate.

And that does not indicate the Senate are pondering deeply where the latest threshold for the Instant Asset Write-Off should be. It’s because the Senate is yet to pass the Support for Small Business and Charities Bill and the Instant Asset Write-Off is in there.

It is anticipated that the ever shifting threshold will be back at $20,000 for Assets first used or installed ready for use between 1 July 2023 and 30 June 2024.

Questions about depreciation? Email Depreciator, the depreciation specialists, for the answer.If you have a client we can help with claiming depreciation for a commercial or a residential property, please use your booking link, or make an online enquiry.

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What can be depreciated beyond a building?

A warehouse with blue trim and a large loading yard has significant concrete loading docks and a driveway shared by each of the owners. Each owner is entitled to claim depreciation on their share of this driveway, as well as their loading docks.

We’re not talking here about the Depreciating Assets, or Plant and Equipment, but we’ll touch on them – we have covered these previously.

We want to focus this month on the ‘structural improvements’, or Capital Works, additional to an actual building. Some Quantity Surveyors miss them, and that means your clients miss out on some depreciation.

And they can be missed in commercial properties as well as residential ones.

Why? Laziness, sometimes. 

A lack of understanding, perhaps? 

We’ve been doing this for over 20 years so we know what to look for. 

And when we inspect a property, we like to send a Quantity Surveyor there as opposed to a data collector. Call us old fashioned, but we think it’s best practice for the person who inspect the property to be the one who costs the Capital Works and values the Assets. 

Do you have a client with a property you would like us to tackle? Use your booking link or make an enquiry online.

Let’s look at commercial properties first. We are doing an increasing number of them – everything from small shops to large farms.

Key Points

  • Owners of shops and offices are entitled to claim depreciation on the common area Capital Works and Assets, e.g. underground carparks, foyers, elevators, etc.
  • Factories and warehouses are often part of a strata complex with fencing, lighting and security systems in the common areas.
  • Apartments can also have significant Capital Works deductions; they often have underground parking, gyms and pools and fancy roof top areas with BBQs.
  • ‘Hard Landscaping’ is Capital Works, but ‘Soft Landscaping’ can’t be depreciated so we separate out the hard from the soft in our Depreciation Schedules.

A row of shops with carparking out the front of each shop. Shops that are part of large complexes like this can have more opportunities to claim depreciation. Often, they are part of a strata complex, just like an apartment, and the owners are entitled to claim depreciation on the common area Capital Works and Assets.What gets missed with shops and offices?

We’ll tackle shops first.

Standalone shops are pretty simple. But shops that are part of large complexes can have more opportunities. Often, shops are part of a strata complex, just like an apartment, and the owners are entitled to claim depreciation on the common area Capital Works and Assets.

Think underground carparks, foyers, elevators etc. The Contract of Sale can be invaluable with these jobs.

And if the shop can be used for food prep and service, there is often a grease trap. Gee, a lot of people miss them.

Fitouts can also be tricky. If a client buys a property with a tenant in-situ and that tenant paid for the fit out, they would likely be depreciating it. But if the tenant has left and the fitout is still there, or if there was a landlord contribution for the fitout, the new owner of the property can depreciate it.

Similar opportunities are available for offices.

What gets missed with factories and warehouses?

Factories and warehouses are often part of a strata complex with fencing and lighting in the common areas and perhaps security systems and gate motors. There will also be fire services, drainage and concrete. Lots of it. And it won’t be the same as the concrete on your driveway at home.

Again, the Contract of Sale can be useful because it will often tell us about the common areas.

Even standalone factories invariably have a lot of concrete – you can read more on this here.

A sheep farmer leans on his gate as he overlooks his sheep in a paddock. Farms can have numerous buildings, some of which interestingly can be claimed as Plant and Equipment, such as a shearing shed.What gets missed with farms?

Farms are whole other thing and we can understand why most Depreciation Schedule providers avoid them, or do them badly. We do them often and have a Quantity Surveyor who knows more about cattle crushes and silos and goodness knows what else than he ever thought he would when he was a callow student many years ago. 

Farms can have numerous buildings, some of which interestingly can be claimed as Plant and Equipment. 

When is a shed not a building? When it’s a shearing shed.  A shearing shed is Plant and Equipment. Oddly, the Effective Life is 50 years, longer than Capital Works are typically, but because it’s Plant and Equipment, the DV rate is 4%. Or in some cases the Instant Asset Write-Off can be used.

When else is a shed not a building? When it’s a milking shed. Did you know there is also something called a ‘maternity barn’ on some dairies that is also Plant and Equipment – 20 year Effective Life.

And beyond the buildings, farms have culverts and dams and concrete channels. 

And of course there is all that fencing. Thankfully in most cases there is a paddock plan.

And all those cattle crushes.

Yee haa, cowboy!

A gym in an apartment complex with rows of treadmills. Apartments can also have significant Capital Works deductions; they often have underground parking, gyms and pools and fancy roof top areas with BBQs. What gets missed with residential properties?

We’ll divide these broadly into apartments and houses.

Apartments, like strata offices, can have significant Capital Works deductions beyond the apartment themselves. There is often underground parking, gyms and pools and fancy roof top areas with BBQs where residents congregate to look down upon the masses.

We very helpfully split the common Capital Works from the in- apartment Cap Works, as we do with the Assets. Other providers don’t do this.

Houses are easier, of course. But there is still fencing and driveways and often retaining walls. There can be pergolas and elaborately constructed BBQ areas  And what about landscaping?

‘Hard Landscaping’ is Capital works, but ‘Soft Landscaping’ can’t be depreciated. That’s because depreciation is driven by Effective Lives. A concrete path has an Effective Life of 40 years, but a geranium, say, does not have an ATO Effective Life. So we separate out the hard from soft landscaping.

There are also houses that are part of gated communities. They can be trickier as owners often pay levies for the upkeep of roads, tennis courts and pools etc, so we can often depreciate them.

Questions about depreciation? Email Depreciator, the depreciation specialists, for the answer.If you have a client we can help with claiming depreciation, please use your booking link, or make an online enquiry.

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Which has more depreciation? Houses, apartments or commercial properties?

Looking at depreciation of houses, apartments and commercial properties under a magnifying glass

It’s something we get asked often. You might, too. Our answer is always, ‘It depends’.

We follow that up with pointing out that the depreciation deduction should not be the main factor in making a purchase decision, though it is a nice deduction to take off the table every year with no need to outlay anything.

That’s something not all clients understand, i.e. depreciation is just sitting there waiting to be claimed. They just need someone to work out how much they can claim. And that’s what we have been doing for over 20 years.

Backing up a few steps, depreciation is driven by what a property cost to build, and not what it cost to buy. Houses in capital cities especially often cost more than apartments to buy, but it’s usually the value of the land driving that cost. And land, of course, does not come into depreciation. An office in a large strata building will have similar depreciation to an apartment. While a small factory unit will have less. And farms are a whole other ball game. We covered commercial properties at length in a ‘Something You Didn’t Know About Depreciation‘ last year.

Key Points

  • Depreciation is driven by what a property cost to build, and not what it cost to buy.
  • Depreciation for houses depends on the age of the house, the size, construction type, and the quality. This gives us an estimated build cost at the time of construction that our depreciation schedules are based on. 
  • Depreciation for apartments has an additional layer: the common areas of the building. Clients own a part of them and can therefore claim depreciation on the structural works and in some cases the associated Assets.
  • Commercial properties can vary wildly in size and complexity and in depreciation returns. But we do them all.
  • So which property has more depreciation? Houses, apartments or commercial properties? The short answer is, it depends!

A house in twilight with the lights on. Depreciation for houses depends on the age of the house, the size, construction type, and the quality.Depreciation returns on houses

Let’s look at houses first of all.

It’s arguably easier to work out the construction cost of a house than an apartment. Sure, there are some very fancy houses we do, but many houses that are rented out are fairly modest.

First up we need to know the age of the house. Did you know there is still depreciation available in houses where construction started after September 1987? Yep, older houses still have something to claim, which surprises many clients – and accountants.

We have a handy table that shows you the depreciation claimable on older properties.

And we have written about it in previous ‘Something You Didn’t Know About Depreciation‘.

(There are also renovations to older properties that may have been done by previous owners. Renovations can have good depreciation regardless of the age of the property. You can read more about this here.)

Having established the age of the house, we then look at the size, construction type, and the quality to arrive at an estimated build cost at the time of construction.

Often we can do modest older houses without an inspection to save your clients money, but we are always happy to inspect. Generally with these jobs, there is no depreciation available in the second hand Assets e.g. appliances, floor coverings etc, but we still value and note them for you in case it is of use. We guarantee to find at least 2 x our fee in the first full year on modest unrenovated houses built after September 1987. If we don’t think a job is worth doing, we’ll tell your client.

Brand new houses rented out immediately have more depreciation because the Assets can also be depreciated. We have a guarantee for brand new houses that we will find more than 10 x our fee in just the first full year of depreciation. Often we don’t need to inspect these either, especially if the client has a building contract that has the total price, plans and specifications. But again, we are always happy to inspect if a client prefers.

Then there are the complicated houses. A difficult site or interesting construction methods cost more. We routinely inspect houses where the construction cost is well over $1 million. Pools can add significant costs, as can second kitchens and basement areas. We’ve even been into houses with garages fitted with turntables and car lifts.

We recently finished a Depreciation Schedule on a complicated, brand new house where the depreciation in the first full year was a shade over $90,000.

An apartment building against a blue sky. Depreciation for apartments also includes the common areas of the building, including pools, gyms, lobbies, underground parking, rooftop decks - clients own a part of them and can therefore claim depreciation on the structural works and in some cases the associated Assets. Depreciation returns on apartments

Now let’s look at apartments.

Why are they sometimes more difficult?

Common areas.

Pools, gyms, lobbies, underground parking, rooftop decks –  clients own a part of them and can therefore claim depreciation on the structural works and in some cases the associated Assets.

Apartment complexes need a visit, at least for the first Depreciation Schedule in the building. What we mean by that is that after one has been done and common areas surveyed, it is often possible to do subsequent jobs in that building without a visit.

For a brand new apartment in a large complex rented out straightaway, the depreciation is boosted by the common area Assets e.g. elevators, ventilation, furniture and equipment. Being able to include the Assets in a job will boost the depreciation return by 40%. It’s not unusual for a brand new apartment in a nice building to have around $15,000 in depreciation in the first full year.

You can find a table here with a rough guide for depreciation on properties rented out brand new.

Even second hand apartments in large complexes can have good depreciation in the Capital Works.

Of course, apartments in smaller complexes with few common facilities can have less depreciation than houses simply because the build cost for a modest apartment in a small complex can often be less than a comparable house.

So it all largely gets back to the cost to build the dwelling, as opposed to the cost to buy it. This can perhaps best be demonstrated by pondering comparable apartments. 

Let’s imagine a client buys a new two bedroom apartment on the first floor of a large and fancy new building on the coast. Immediately beneath their balcony is the entrance to the underground carpark with a roller door, a squeaky one, that opens all the time. Beside that entrance is the area where the garbage bins are kept. And it’s a coastal location, so there are plenty of fish scraps in those bins. And then across the shabby rear lane, the view is of a Maccas carpark – with a drive-through that operates 24 hours. 

Now let’s imagine another client buys an identical apartment – same size and layout – in that building but theirs is on the 6th floor. Facing the ocean. They can sit on their balcony as the sun rises and watch the local tradies catching a wave before heading off to work – or not, if the waves are good. They can see whales cavorting further out. Maybe there is a sailing boat or two.

These clients would have paid very different amounts to buy their apartments, but the cost to build them would not have differed much. And should they rent them out, the depreciation would be similar, which is some consolation for the client with the first apartment.

And often there are substantial common areas, just like apartments. Offices in strata buildings will have lobbies and underground parking and all the Assets associated with them: elevators, mechanical ventilation, floor coverings etc. Depreciation returns on commercial properties

The depreciation on commercial properties can vary as much as the properties themselves do. And we have done them all. Everything from small standalone shops right up to large farms. Once we even did a prawn farm. And some years ago we had a run of chicken farms on the outskirts of Melbourne.

The eligibility dates and some rates can differ from residential property, but the cost to build the property is still the main driver of depreciation.

And often there are substantial common areas, just like apartments. Offices in strata buildings will have lobbies and underground parking and all the Assets associated with them: elevators, mechanical ventilation, floor coverings etc. 

The per square metre cost to build an office is often similar to that of an apartment, but the air conditioning and technology included in a new office fitout can push the depreciation returns up significantly. 

Modest factory units can also have extensive common areas. There are driveways and sometimes expansive hardstand areas for trucks to manoeuvre and park on – and the concrete in these areas will be more robust and therefore more expensive than that in a residential setting. Then there are fences, gates, security systems etc.

And of course the buildings themselves can vary in complexity. The preferred method of construction for factory units in groups is tilt up concrete. It can run to $1,800 – $1,900 per square metre – preferred partly because it is simple and fast and provides fire protection. Larger standalone factories these days tend to be constructed using portal frames and cladding which brings down the cost per square metre.

But one benefit commercial properties have over residential is that the second hand Assets (Plant and Equipment) can be claimed. You will recall in residential property, depreciation can no longer be claimed on second hand Assets. You can read more about this here.

So getting back to the question about which properties have more depreciation, as we wrote, ‘it depends’.

But rest assured we do them all. 

If you have a client we can help with claiming depreciation on a commercial, or residential, property, use your booking link, or make an online enquiry. 

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What are the common mistakes we see in Depreciation Schedules?

Two accountants sit at a desk with their two clients discussing their Depreciation Schedule.

This is the time of year when we reflect. 

On the footy finals, maybe Melbourne Cup, certainly on tax season.

There are some common mistakes we see in Depreciation Schedules every year, and this year was no exception. Some of you sent them to us to seek our opinion. So we thought given you would still be seeing Depreciation Schedules, this is an apt time to highlight the main errors.

Remember, there are plenty of Depreciation Schedules floating around in tax season prepared by people who don’t do them all the time. Lots of Quantity Surveyors only turn their attention to tax work for a few months of the year.

As for Depreciator, it’s all we do. And we’ve done it for over 20 years. If the only Depreciation Schedules you ever saw came from Depreciator, there would be nothing you had to fix.

If you have a client who needs a Depreciation Schedule, a correct one, make an enquiry here. We’ll call your client and discuss the property and work out the best way to proceed. And if the job is worth doing, we’ll do it quickly. That’s why so many accountants refer their clients to us – more than half our work comes from accountants.

And if you have a Depreciation Schedule you are not sure about, email it to us at affiliates@depreciator.com.au . We can tell quickly if it’s correct or needs to be fixed.

So what are some of those mistakes?

Key Points

Common mistakes we see in other providers’ Depreciation Schedules include:

  • Depreciation Schedules that list Capital Works incorrectly as Assets.
  • Depreciation schedules for jointly owned properties that do not correctly split the assets.
  • Providers who are not aware of or do not make adjustments for changes to depreciation rates in Assets.
  • Some providers do not offer the Low Value Pool to help clients claim depreciation faster on assets valued $300-$1,000.
  • Depreciation Schedules where items are included as improvements when they can probably be claimed as repairs.

A kitchen is not an asset in terms of Depreciation. It is considered to be part of the building and depreciates at 2.5% per year.A kitchen is not an Asset

Kitchen cupboards, sinks, benches – they are all Capital Works. It would be nice if a $20,000 kitchen could be written off faster than 2.5% per year, but that’s not the case.

The appliances in a new kitchen are of course Assets and can be written-off quickly. As can carpets, curtains, air cons etc. But not kitchen cupboards and benches. 

And it’s not just kitchens people classify wrongly.  Shower screens, pergolas, an inground spa, taps, letterboxes, clotheslines and new door hardware are all things we have seen recently incorrectly classified. 

And it might surprise you to learn that some of you are using software that has incorrect or outdated rates.

The ATO have a handy list of what is an Asset vs Capital Works at the back of a very good publication here. 

We tell clients, one general test for what is an Asset vs Capital Works is how long the item is likely to last. Kitchen benches, shower screens, taps will all last a long time unless a tenant does something stupid to them. And in that case it becomes a ‘repair’ opportunity.

Not splitting Schedules properly is laziness

It’s not unusual for a property to be jointly owned and for each owner to want a Depreciation Schedule. We prepare split Schedules for no additional charge.

The first mistake some companies make is assuming the split is 50/50. It often isn’t, as you would know. So we ask your clients what the split is.

The main mistake made is that some companies will just split the depreciation total and fail to split individual Assets. A $500 oven if owned by two people at 50/50 becomes two ovens at $250 each and can be written-off immediately.

Or a $1,200 hot water heater becomes two items at $600 each and can go into the Low Value Pool.

And if that $1,200 hot water heater is owned, say, 80/20, one owner has a $960 item that can go into the Low Value Pool, and the other owner has a $240 item that can be written-off immediately. 

Depreciation rates for Assets occasionally change

Not terribly often, but it happens.

And when it does happen, clients invariably benefit. 

Carpet, for example, had its Effective Life reduced from 10 years to 8 years not long ago. Pumps in rainwater tanks had a bigger adjustment.

Chances are these changes are not reflected in your inhouse software, or in the software of some of some Depreciation Schedule providers, but they are in ours.   

Blinds are an example of an asset that may fall into the Low Value Pool.Not all providers offer the Low Value Pool

Goodness knows why. There is no obligation to use it, of course, but we are yet to encounter a client who wants to slow down their depreciation.

The Low Value Pool rates for Assets valued $300 – $1,000 as you would know are 18.75% for the first part year and then 37.5% per year after that. Items with a written down value of less than $1,000 can enter the Pool.

One thing not many people realise is that there is a Low Value Pool available for the Prime Cost method. The difference between the Prime Cost Pool and Diminishing Value Pool is that items in the Prime Cost Low Value Pool are fixed and none can enter it subsequently.

Repairs vs Renovations

We often see ‘improvements’ added to Depreciation Schedules when in our opinion they can probably be claimed as ‘repairs’. A 100% immediate write-off is a lot better than 2.5% over 40 years.

We wrote about this here recently.

It’s worth quizzing clients and digging a bit deeper. Or just trusting your clients to us, because that’s what we’ll do.

If you want us to talk to a client about a Depreciation Schedule,  make an enquiry online  or email affiliates@depreciator.com.au. 

Christmas will be here before you know it

This will be our final ‘Something You Didn’t Know About Depreciation‘ for the year. But we’ll still be here for you and your clients who may need a Depreciation Schedule. 

Depreciator will be staying open, other than public holidays, with reduced staff from 20/12/23 until 08/01/24. Please email affiliates@depreciator.com.au with anything you need help with during this time. 

Thank you for your support in 2023. We value your trust and confidence in us and we’re looking forward to another year working together in 2024.

Enquire now for a property-specific assessment

Has this article reminded you about a client’s investment property? Residential properties, commercial properties, even farms, we do them all.

If you want us to talk to a client about a Depreciation Schedule, make a no-obligation enquiry and rely on our 20-plus years of experience in estimating depreciation returns.

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How do you deal with the disposal of Capital Works in a rental property?

A new kitchen with marble splashbacks and drawers with black handles. This new kitchen was added to an investment property after an older 90s kitchen was removed. There was residual value in that older kitchen.

We have had a few accountants get in touch with us about this lately and we have a theory.

That pesky virus stopped people from travelling and we all know the unanticipated consequence was huge interest in property – that discretionary spending money had to go somewhere.

So people were renovating properties and building granny flats – more about them later.

Claiming depreciation on renovations is easy when the clients have all the costs and you may not need to get us involved, but what if in the course of those renovations there are eligible Capital Works that get disposed of? That’s like tossing money into a skip bin – and in some cases it can be a lot of money.

If a client comes to you this tax season and tells you they did a renovation recently on a rental property, dig a little deeper. Or better still, make an enquiry and we’ll have a chat with the client and report back on what we find out.

You’ll be very popular if you find a tax deduction they have never heard of.

That’s the sort of service we give your clients.

Key Points

  • Your clients may be able to claim on the disposal of Capital Works where there is residual value left in existing Capital Works prior to a renovation.
  • Brand new granny flats often have a building contract with a total cost, so we don’t have to inspect the property and we can reduce our fee.
  • Older properties with a renovation plus a granny flat may require two depreciation schedules.
  • A number of LGAs are making short term rental properties a less attractive investment which may mean you will need to rework their depreciation claims.

A new bathroom with a large white standing bath in front of floor to ceiling windows. A long, white vanity with a wall mirror is to the side. This bathroom replaced a an older bathroom with 25 years of effective life left in it. Our client can claim the residual value in the Capital Works of the old bathroom, as well as the Depreciation in the new bathroom.What Capital Works have residual value in them that can be claimed?

You would be surprised.

Just this week we had a client come to us after completing a renovation on a late 90s built apartment. It was a typical reno: new kitchen, new bathroom, paint and floors. People usually spend around $40K doing this sort of project. 

They knew that there was some depreciation left in the original building shell and they knew there was depreciation to claim in the renovation – their accountant told them that.

But what about the old kitchen and bathroom? Nobody mentioned that, so it’s lucky they were referred to us because we spotted the opportunity.

The client had rented out this property for a few years, did the reno during Covid, and put it back on the rental market. That’s important.

That late 90s kitchen and bathroom still had around 25 years of depreciation left in it. Luckily, the client had some ‘before’ and ‘after’ photos and a plan, so we were able to estimate what they could claim on those Capital Works that were disposed of.

Our estimated residual value of those Capital Works was a bit over $7,000. Not huge, but a nice surprise for the client, and they were pleased their accountant sent them to us.  

Earlier this year, we had a client who had been renting out a house for ten years and decided to do a knockdown and rebuild – duplex project. He now has two rental streams for that address and lots of depreciation to claim.

But importantly, that 1992 house he knocked down had another 10 years left to claim on the Capital Works. It was a modest, but large, house and we estimated the original build cost to have been around $97,000. 

What was the residual value of the Capital Works that went into that skip? 

$24,250.

And they had no idea. Just as well we have plenty of ideas. 

A duck egg blue granny flat with white roof and window trim. A wooden deck out the front. Depreciation can be claimed on the granny flat as it is used as an investment property.What is the best way to deal with granny flats?

We’ve been getting more enquiries this tax season with granny flats in the mix.

One scenario is a client with an existing, and usually older, rental property on a decent block of land has decided to make that land more productive than it was growing tomatoes, so they put a granny flat there.

These are the easy jobs. The typical investment for a new granny flat is $120-150K and often, there is a building contract with the total cost and plenty of information on the Assets. We usually don’t need to inspect these properties, so your clients benefit from a reduced fee and a turnaround time of a couple of days if required.

Then there are the more complicated scenarios when a client has purchased a property with an old house, that has invariably been renovated, and a newish granny flat in the backyard.

We tend to do two Depreciation Schedules with these jobs – the second at a significant discount. We’ll do one for the house to capture the renovations, and a separate one for the granny flat. 

Why? Well, if we put everything on the one property and the client decides to move into the house or knock down the old house, you’ll have to untangle it. And good luck with that. Accountants find a separate Depreciation Schedule for each property makes their job easier. And that’s what we like to do.

An unhosted Airbnb property, with a pool, lit up with with pool lights at the rear of the house. Pool chairs line the side of the pool. Short term rental properties like this one will have the number of days it can be rented out capped in Byron Bay to encourage long term rentals in the area.The Airbnb squeeze…  

No, we don’t mean when you find that the Airbnb property you booked for your boisterous friends is a lot smaller than it looked in the listing.

We mean the increasing moves from some LGAs (Local Government Areas) to reduce the number of ‘unhosted’ short term rental properties. These are ones where the host does not live at the property. We covered this briefly in a previous edition.

You might have heard the very recent news that Byron Bay in northern NSW will, from the 23rd of September next year, limit the number of days an unhosted property can be rented out for short stays to 60 days per year. The aim is to make more properties available to long term tenants.

And for those clients who say, ‘Pffttt. It will never be enforced. Who is going to count the days?’ The answer is: the neighbours. They would hate living next to a party house and will probably have a calendar on the fridge where they mark off the nights the property is occupied. Airbnb may also be made to share the data, just as they share host income data with the ATO.

You might have some clients rethinking their involvement with the short term rental market and unwinding things. That will mean getting rid of furniture and reworking depreciation claims.

Enquire now for a property-specific assessment

Has this article reminded you about a client’s investment property?

Make a no-obligation enquiry and rely on our 20-plus years of experience in estimating depreciation returns.

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Do you know how to treat a Special Levy payment?

A close up view of concrete cancer, with the concrete peeling away to reveal the steel structure within rusting. Concrete cancer can reveal itself in apartment buildings and may need remedial work to be repaired.

This is the time of year when we get lots of clients contacting us about the tax treatment of Special Levies that were imposed on them last tax year.

Most clients of course think (or hope) a Special Levy payment can be expensed, like sinking fund or admin fund contributions. But we, and you, know better than that.

We are always happy to chat to your clients and tease out the information we need to suggest how the Special Levy should be treated.

The first thing we ask them is what was the purpose of the Special Levy.

Then we ask them when they started to rent out the property.

Armed with the answers to these questions, we can make a suggestion.

Do you have a client you would like us to have a chat with? You can make an enquiry here. It doesn’t have to be related to a Special Levy, it can just be a new enquiry for a Depreciation Schedule, too. We’re here to consult with your clients to determine the most sensible option for them. 

Key Points:

  1. Special Levies are imposed when a building has problems and there is insufficient money in the sinking fund to deal with those problems. 
  2. The longer a client has been renting out a property, the greater the chance of claiming work as repairs rather than improvements.
  3. If a client has only recently started to rent out a property and the building problem existed before then, it’s not a repair and they need to claim the Cap Works at 2.5%.

The corner of the top level of an apartment building where the concrete is peeling away from the buildingLet’s look at the purpose of the Special Levy

Special Levies tend to be imposed when a building has problems that have become apparent and there is insufficient money in the sinking fund to deal with those problems.

In the last month, we have had clients contact us about Special Levies that have been required to deal with a failed roof membrane, concrete cancer, and a collapsed (subsidence) driveway. 

One of these resulted in a $35,200 Levy for that client, so there is an understandable hope that it can be expensed because ‘that work was a repair, right?’

Not so fast, we said. ‘When did you start renting out your property?’

A work person replaces some roofing membrane on the top of an apartment buildingWhy is the date of first rental relevant to Special Levies?

As you know, the ATO’s definition of a ‘repair’ in general terms is to deal with damage that occurred while a client was renting out a property. The longer a client has been renting out a property, the greater the chance of claiming work as repairs (vs improvements).

If a client has only recently started to rent out a property and the building problem existed before then, it’s not a repair and they need to claim the Capital Works at 2.5%.

Last year we had a client who came up with what they thought was a cunning plan. 

They knew there was a Special Levy coming. It had even been minuted in the previous year’s annual strata meeting. Their idea was to rent out their apartment before the Special Levy notice came to them and then claim that work as a repair. We let them down gently.

Of the above three examples above, the failing roof membrane was a problem known about for years. So was the concrete cancer. The driveway collapse was a bit of a surprise – a broken stormwater pipe undermined it and a removalist truck finished the job. This was a legitimate repair – insurance did not cover the whole cost.

A close up of a wall with concrete cancer, where the steel structure supporting the concrete rusts, expands, and the concrete cracks and blows off in places. It can be expensive to correct.A case study in concrete cancer

More than half the enquiries we get about Special Levies are related to concrete cancer. Concrete cancer occurs when the steel work in concrete rusts and expands and the concrete cracks and blows off in places. It can be a terribly expensive thing to deal with.

Some years ago, we were engaged by the strata manager of an apartment building on the Sunshine Coast in Queensland to help them suggest to investment apartment owners how they could deal with the treatment of a Special Levy that was about to lob into their inboxes. 

The average Special Levy was $55,000 (the unit entitlement determines the exact amount), so it would have been a disappointing surprise to many owners.

We asked the strata manager to go back through the strata records and tell us when the spectre of concrete cancer first became apparent. Eight years prior. Yep – that’s a long time to kick a can down the road.

Knowing the nature of work and when the problem was first known, we then contacted all investor owners and asked them when they started to rent out their apartment.

Nearly all investors either bought their apartment less than eight years prior or had lived there previously and started to rent it out less than eight years prior. None of those owners could legitimately claim the Special Levy as a deduction because they started to rent out their apartment when the issue was very much known about.

There were a few owners who had only recently purchased their apartment and were very surprised about the Special Levy. We commiserated with them – it would have been mean spirited to suggest that a $300 strata report might have been wise investment given the estimated cost of the total job had been noted in the strata minutes for the preceding couple of years.

And there were some owners who had been renting out their apartments for almost twenty years. For those owners, we felt the cost of dealing with the concrete cancer could be expensed as a repair.

Do you have a client you would like us to have a chat with? Make an enquiry here. 

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Do you know about the downside of Airbnb?

Two storey Airbnb property with a pool and a glass fence in the back yard, lined by a green hedge

You will have clients either doing short term rentals now or seriously considering it. 

We don’t just mean Airbnb, of course, but that’s the one people think of when we talk about short term rentals.

And when we write about the ‘downside’, we don’t mean the odd glass getting smashed or disappointing stains on a rug.

Airbnb came roaring back after Covid and we are now seeing another surge as clients try to generate some income to cope with rising interest rates and inflation.

We are amending a lot of our Depreciation Schedules these days to add new furniture. It’s best for you if we add it so everything is in the one place. We do those amendments free for your clients.

Do you have a client who needs a Depreciation Schedule you would like us to talk to? If you do, log an enquiry using your link, we’ll call them within the hour. We can have a sensible conversation with them about their property to save you some time. It’s what you would expect from a company that has been doing this for over 20 years.

Back to short term rentals:

Key Points

  1. Unhosted properties are those where the host lives elsewhere and the guests have access to the entire property.
  2. Hosted properties are those where a client is living in the property and renting out some spare rooms. 
  3. Depreciation can only be claimed on brand new furniture purchased for the use of the Airbnb clients. Furniture cannot be claimed.
  4. There will be CGT implications for your client in either of these scenarios. You’ll need to be sure they are aware of these.

Unhosted Properties

Pool area of an Airbnb property, with a shade cloth overhanging the pool, and a table and chair setting to the sideUnhosted properties are ones where the host lives elsewhere and the guests have free reign of the property.

With the latter, all the states and the LGAs within them have varying and changing rules on how many days an unhosted property can be rented out in a year. 

NSW is the strictest with all hosts needing to register their properties on the state government’s STRA (Short Term Rental Accommodation) register and pay a nominal fee. 

When it comes to monitoring the number of days in a year a property is rented, a client said on the phone last week, ‘Yeah, but who is going to check up on that?’

We said, ‘Ýour neighbours.’ 

Not many people like living next door to a ‘party house’, so many neighbours would be keeping a record of how many days the house next door is rented out and as soon as the cap is exceeded, they’ll be heading straight down to the local council.

And if the property is then delisted on the short term rental platform and it goes back to being a regular rental property, it can be a lot to unwind.

A closer look at hosted properties

But let’s talk about hosted properties, those ones where a client is renting out some rooms to make ends meet.

People have rented out rooms in their properties or taken in boarders forever, so it’s nothing new. In many cases, that income was incidental and not declared.

But short term rentals are now much more lucrative and there is no getting away from declaring that income. In June this year, Airbnb sent an email to all hosts telling them that they were passing on income data of hosts to the ATO. The ATO have said they are keen to capture as much of this as possible, so it’s important to make sure that short term rental income is recorded and reported accurately. 

If income is forcibly declared, deductions might as well be claimed. Accountants will likely work out a percentage to claim of council rates, strata fees, insurance etc based on the lettable area of the property taking into account shared spaces. 

When we do a Depreciation Schedule on a hosted Airbnb, we do it at 100% unless advised otherwise – and very rarely do clients know what percentage of other deductions an accountant is claiming. If you refer a client to us, feel free to tell us what percentage you would like us to use. 

Furniture in Airbnb properties

Living room furniture in an Airbnb property that may be able to be depreciated as brand new furnitureThis is where it can get tricky.

Many clients think that when they rent out their furnished property, they can also depreciate their furniture – all their furniture. A friend has often told them this.

But as you would know, much like the fixed assets in the property, if the furniture is second hand they can’t claim depreciation on it. The depreciation on that furniture needs to be deferred. Only furniture purchased brand new for rental purposes can be claimed. 

In these cases, there will be a mix of furniture in the Depreciation Schedule – some being depreciated, and some being deferred.

CGT complications

Then there is the potential Capital Gains Tax liability. 

This is something not on any client’s radar, but it will be on yours and you’ll have to advise your clients.

It’s also on the ATO’s radar. Interest payments to banks for investment loans is easily accessible and as mentioned above, the short term rental platforms have been directed to share income data with the ATO. 

Ideally, your clients will share their plans before they start renting out rooms or renting out a whole property and moving back in with mum and dad, but probably not. 

Clients will come to you after renting out all or half their apartment for a year or so and you’ll have to break the news to them that there could be CGT consequences for them down the track. 

We mention the potential issue to clients who share their intentions with us and suggest they chat to their accountant, but often they speak to us after the fact, too. We’re always happy to talk to your clients and bring to bear our 20 years of experience in depreciation matters.

Has this article reminded you about a client’s investment property?

Make a no-obligation enquiry and rely on our 20-plus years of experience in estimating depreciation returns.

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Are your clients maximising depreciation on renovations? #5 July 2023

An accountant reviewing information with their client in the office

Are your clients maximising the depreciation on renovations?

Chances are they’re not.

There can be a lot of depreciation in renovations and lots of people don’t claim it.

Why?

Sometimes it’s because the property is old and they assume with an old property there is nothing that can be claimed.

Sometimes it’s because they think renos done by previous owners can’t be claimed.

Sometimes it’s because they don’t even know there have been renovations.

Sometimes it’s because their accountant doesn’t realise the opportunity.

Renovations can be confusing and we get lots of questions about them from clients and accountants.

Most of the Depreciation Schedules we do on older properties have been renovated. It stands to reason that a house built, say, 50 years ago will have had some work done to it.

Over the last 20 years, we have done tens of thousands of Depreciation Schedules on older properties and we can spot a renovation a mile off.

Do you have a client with an older property that you’d like us to have a look at? Make a no-obligation enquiry here.

And of course if your clients have done a renovation, you’ll need to understand the blurry line between improvements and repairs, find out more about that here.

Key Points

  • A renovation is any work that changes or adds to a property.
  • If a property has had work done to it in the last 30 years, that work can be depreciated regardless of the age of the original building.
  • When a client buys an investment property, they are entitled to depreciate any eligible Capital Works.
  • We look at listings every day with clients on the phone, and we can often spot renovations the client did not know were there. It’s always worth a call.

What is a renovation?

Kitchen installers putting together cabinets in a new kitchen

Let’s back up a bit. The ATO talk more about ‘improvements’. But ‘renovations’ is a term more familiar to clients and that’s what we use.

So what constitutes a renovation for our purposes? A renovation is any work that changes or adds to a property. 

The most common structural renovation is a new kitchen. 

Second would be a new bathroom – original bathrooms tend to last longer than kitchens.

Decks and pergolas are common additions.

Then there are more significant works like second storeys or rear additions.

Cosmetic changes can also come under the blanket term ‘renovations’: new carpet, paint, light fittings, appliances. Of course second hand Assets can’t be depreciated anymore, but we still include them in the Depreciation Schedule and note the deferred depreciation so you can possibly pick it up later when doing CGT calcs.

You can read more about the changed treatment of second hand Assets in our previous edition of ‘Something You Didn’t Know About Depreciation’.  

‘My property is old so there is no depreciation in it’

An older bungalow-style house with a hedge-lined pathway leading to the front stairs.

Clients say this all the time, but it’s usually not the case.

Would it surprise you to know that 74% of the Depreciation Schedules we do on older properties have renovations in the mix?

It’s 2023 now.  If a property has had work done to it in the last 30 years, that work can be depreciated regardless of the age of the original building.

Consider the housing stock in the middle ring of suburbs in all our capital cities. Some of those houses are 200 years old. Many are at least 100 years old.

All have been renovated.

And many in the last 20 years or so.

Sometimes it’s hard to keep or attract a tenant if a property has not been renovated.

From your perspective, it’s best to assume a client’s older property has been renovated and then let us confirm either way. There are always photos online and in a few minutes one of our Quantity Surveyors can tell whether the property has been renovated, when it might have happened and in most cases the approximate cost of those renovations – and the resulting Capital Works deduction.

That’s why you use Depreciator, because we have the experience and the skills to make these sorts of determinations to guide your clients.      

‘The renovations were done before I bought the property. I can’t claim them.’

A new kitchen that was installed by the previous owners of the propertyLots of clients think this is the case and this is something they say often.

When a client buys an investment property, they are entitled to depreciate any eligible Capital Works.

If the property was built after September 1987, there will still be some depreciation in the original building – read more about this here.

But it’s likely that property will have had some renovations, and they can also be depreciated.

Or the property might be very old and all the depreciation will be in the renovations.

Let’s think again about those original properties in the middle ring of the capital cities, the properties that can be up to 100 years old.

A typical renovation would be to open up the back, bung on a deck, relocate the kitchen and add a second bathroom.

Even 20 years ago, this could have cost $200K. So that’s $5,000 per year that can be claimed by the new owner for the next 20 years on just that renovation.

The next question client’s ask is, ‘But how do I know what the previous owners spent?’

That’s an easy one to answer. ‘That’s why you need us,’ we tell them. We use Quantity Surveyors, unlike many other Depreciation Schedule providers, and they are very good at costing historical Capital Works. 

‘My property has not been renovated.’

An older Queenslander house that has been renovated to include a liveable space downstairsWe are often surprised that clients have no idea their property has been renovated.

But good on them for making an enquiry. We look at listings every day while clients are on the phone and can often spot renovations the client did not know were there. 

Even something modest like a new kitchen and bathroom and a paint job in a 1970s walk-up flat can throw off over $1,000 per year in depreciation. That’s not a huge amount, but worth claiming.

Then there are the clients who know a property has had some work done, but have no idea how much. This is typical with older properties. Last month, a client called up about a Queenslander they had bought. It was obvious that it had a recent kitchen and bathroom and a paint inside and out, but our Quantity Surveyor who went there could also tell the house had been moved on the block and lifted to create habitable spaces downstairs. The annual depreciation on that very old Queenslander is over $8,000 per year.    

Enquire now for a property-specific assessment

Has this article reminded you about a client’s investment property?

Make a no-obligation enquiry and rely on our 20-plus years of experience in estimating depreciation returns.

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The depreciation clock is ticking on older investment properties #4 June 2023

Picture of an old investment property that has depreciation available in improvements

The depreciation clock is ticking on older investment properties

Depreciation will run out soon on some older investment properties, but in the meantime, you’ll be surprised at how much depreciation many still have in them.

And that applies to residential and commercial properties. We wrote about commercial in our last Something You Didn’t Know About Depreciation. You can find it here.

But let’s talk about residential properties now.

Many accountants, and therefore their clients, think that older properties have no depreciation in them. Not true. Perhaps those changes in 2017 have confused people – more about them later. Perhaps it’s been too hard to estimate the depreciation in older properties? We do that all the time. We even have a handy depreciation estimates table you can use.

Key points for depreciation in older investment properties

    • Older properties can still yield great depreciation for your clients. It’s always worth a call.
    • The 2017 changes to depreciation did NOT affect depreciation claimed on the building. The changes only affect the Assets in the building.
    • The Instant Asset Write-Off is due to replace Temporary Full Expensing from 1 July 2023.

Older 2 storey investment propertyOlder properties can yield great depreciation

Let’s look at some dates.

Any residential property where construction commenced after September 16, 1987 can be depreciated. That’s the building (Div 43) we are talking about.

Let’s say a client has just bought a house built in 1988. The building will keep depreciating until 2028. So while time is running out, it has another 5 years of depreciation left in it. We did one of these recently…

It was a home built in 1988 and we estimated the build cost was $70,000. That’s $1,750 per year for the next 5 years.

But even better, like all older homes, this one had been renovated by a previous owner. Our Quantity Surveyor spotted that straight away. It was the usual reno: kitchen, two bathrooms, and a general tidy-up. It happened around 10 years ago, but would have cost $60,000. That work depreciated at $1,500 for another 30 years from now.

So the total depreciation on that modest 35-year-old home for the next 5 years is over $3,000 per year. A nice deduction – too nice to not claim.

If there are photos of the property online, in a quick phone call we can tell you or your clients how much deprecation might be in the property before we do anything – it’s always worth call on 1300 660033. Is there a property you’d like to enquire about now? You can use your booking link, or send us an email at affiliates@depreciator.com.au.

The 2017 Changes to Depreciation

Not as bad as people think. There are still some people who don’t quite understand them. The main message is that the 2017 changes did NOT affect depreciation claimed on the Building.

The 2017 changes to depreciation only affected the Assets (Div 40), eg. appliances, floor coverings etc, in second-hand buildings. That’s why there is often still good depreciation to be claimed on old apartments and houses.

Commercial properties were, of course, not affected by these changes at all.

The Instant Asset Write-Off returns

There has been some mischief perpetrated around the demise of Temporary Full Expensing. You would have heard it’s ending on June 30.

There are many companies out there who sell Plant and Equipment items to businesses who have been telling people that they need to get in quick and buy stuff because the sky is falling and it’s all over.

Not true, again.

While Temporary Full Expensing is disappearing because it was, well, temporary, our old friend the Instant Asset Write-Off is back with a threshold of $20,000 per item for businesses with a turnover of less than $10 million. So the sky has not fallen.

Depreciator News

It’s all about us this time.

Depreciator is celebrating over 20 years of doing Depreciation Schedules. It’s all we do, which is why we are so efficient and why our turnaround time is still the best in the industry.

There are core staff, including some of our Quantity Surveyors, who have been with us for that whole ride!

Steve, who many of you know, is taking some extended leave from July, but Scott will still be here. Many of you also know Sarah, and she surely has another 20 years in her!

Is there a client you would like us to help? Perhaps they have an older property? You can use your online booking link to refer them or email the details to affiliates@depreciator.com.au.

Enquire now for a property-specific assessment

Has this article reminded you about a client’s investment property?

Make a no-obligation enquiry and rely on our 20-plus years of experience in estimating depreciation returns.

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Commercial properties have been finding favour with investors recently – #3 May 2023

Industrial warehouses commercial property

Why are more investors choosing commercial properties over residential?

It’s a trend we’ve been seeing for a few years now. Often it’s SMSFs buying commercial properties, but also individuals. And of course, people choosing to buy rather than rent a property for their own business.

Commercial property has always been popular, partly because tenants often pay the outgoings, and leases can be longer and secured. But it was the changes made to depreciation in 2017 that really increased investor interest in commercial properties.

Depreciation on commercial property was also introduced prior to that on residential, so in some cases there is depreciation on commercial property that was built way back in 1982.

You’ll recall that the 2017 changes affected the treatment of Assets (Plant and Equipment) in second-hand residential properties, but not commercial. So commercial properties can yield more depreciation.

We put together Depreciation Schedules on lots of commercial properties – everything from small shops to big farms. There is an advantage for an accountant having a Depreciation Schedule provider that does residential AND commercial properties.

Especially a provider that only does tax work and has been doing it for over 20 years, like Depreciator.

Key points for commercial property depreciation

Industrial warehouses commercial property

  • Assets (Plant and Equipment) can be depreciated in second-hand commercial properties.
  • The building Write-off on manufacturing properties is 4%.
  • The Capital Works part of a fitout must be claimed at 2.5%
  • Instant Asset Write-Off (or Temporary Full Expensing) applies to second-hand Assets in commercial properties.
  • Farms often have lots of unclaimed depreciation.

Which commercial buildings can be claimed at 4%?

Manufacturing properties.

A lot of people don’t know this – even, sadly, some people who prepare Depreciation Schedules.

Claiming Capital Works at 4% vs 2.5% is a bonus for clients who own commercial property.

So what sort of commercial property is classed as a ‘manufacturing property’?

Manufacturing is a broad term but has a narrower meaning in the relevant legislation. To be classed as a manufacturing facility, materials must be changed into a finished product. In a property where this happens, there would be more wear and tear on the building, which explains the 4% boost.

A good example would be a building used to manufacture kitchens. Sheet materials and hardware enter the property and are then cut to size, laminated or veneered where needed, and assembled into cabinets and benchtops.

So there are machines and forklifts and trucks all involved in breaking down material and then creating a finished product from it.

Simply bringing together and assembling pre-manufactured components is not manufacturing, eg. your local computer shop building a desktop PC from already manufactured components, is not in the business of manufacturing. Warehouses similarly are not properties used for manufacturing.

Manufacturing properties can also cost more to build, which can increase the Capital Works claim.

How are commercial fitouts treated?

Sometimes clients don’t own the building but will spend money doing a commercial fitout. We do many of these jobs. These fitouts nearly always consist of Capital Works and Assets. Depreciation for the former is claimed slowly, and the latter more quickly.

We occasionally have clients and accountants who tell us that they only have, say, a 6-year lease and want to claim the Capital Works over those 6 years. Um, can we please?

While there is perhaps a logic to that notion, it’s not a logic that finds favour with the ATO. So the Captial Works, typically fixed Gyprock walls and glass partitions, are written off at 2.5%.

But, if after 6 years (or before) that tenant vacates the premises and demolishes the fitout as part of their ‘make good’ provision, they get to claim the residual value of the Capital Works disposed of.

How are used Assets in commercial properties treated?

Unlike residential properties, used Assets in commercial properties can be depreciated. And in many commercial properties, there can be substantial value in these.

In terms of used Assets, large offices can have acres of carpet and substantial air conditioning plants. Manufacturing properties can have traveling cranes, lifts, and ventilation equipment.

It is not unusual for us to find tens of thousands of dollars in second-hand Assets in a recently acquired commercial property. And the new owner of that property can depreciate those Assets. We just need to assign a second-hand value to them.

Renovations done by previous owners can also be depreciated. Again, we just need to work out the cost of these works when they were done.

Many people, again sometimes including those who do Depreciation Schedules, are not aware that the Instant Asset Write-Off or Temporary Full Expensing can be applied to second-hand Assets and they can in most cases be written off immediately.

Instant asset write-off thresholds since 2020

Purchase Date

Threshold per asset

12/03/2020 to 30/06/2021

$150,000

03/04/2019 to 30/06/2020

$30,000

Temporary Full Expensing

Purchase Date

Threshold per asset

06/10/2020 to 30/06/2023

Unlimited

We all know the threshold for the Instant Asset Write-Off has moved around a lot in the last 10 years and is due to move again on June 30 this year. We’ll be watching for it.

Farms can produce a lot of depreciation

We would be one of a very few Depreciation Schedule providers that does farms. They’re are just another type of commercial property, but one that takes a bit of experience to deal with.

Most accountants depreciate machinery purchases, that’s easy. But when a client acquires a property, there are many things that can be depreciated – and we have never, ever, heard of values being put on them in a sale contract.

The written-down value of fencing alone can be huge. Then there are yards, silos, troughs, bores and goodness what else.

We have a checklist we sent clients with farming properties to gather information before estimating the expected depreciation and quoting on the job.

News: What have the ATO said they are looking out for this year?

In our last edition of Something You Didn’t Know About Depreciation, we wrote in detail about ‘Repairs vs Improvements’ and the sometimes blurry line between them.

The ATO recently came out and said this is something they are going to be looking at, particularly this year, in a way to address their ever-present shortfall.

It’s no surprise that clients would like to try and claim as much work as possible in their investment properties as repairs and not improvements. It’s equally not surprising that the ATO has a completely opposite aim.

Do you know where the line is between repairs and improvements? Read our last month’s article where we covered it in depth.

Help A Colleague Stay In The Know

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Enquire Now For A Property Specific Assessment

Has this article reminded you about a client’s investment property? Make a no-obligation enquiry and rely on our 20-plus years of experience in estimating depreciation returns here: Enquire Now!

Got a burning depreciation question you’ve been meaning to ask?

Email affiliates@depreciatior.com.au, or call us on 1300 660 033. Your question might make it into a future Something You Didn’t Know About Depreciation!