It’s that time of year.  The time of year when everyone has questions about depreciation: clients, accountants, the ATO.

We’re always happy to answer questions. Not that we have all the answers, but given we’ve been doing Depreciation Schedules for nearly 25 years, we have a lot of them.

The most asked question lately has been around repairs. Do you know when a repair is not a repair? You need to.

Another one is, ‘How are Assets treated in an Airbnb?’ People seem to think Airbnbs are something other than a residential rental property and special rules should apply to them.

An old favourite has popped up a bit recently about whether there is any point looking at depreciation on an older property. Short answer: there is.

And this time of year lots of people want to know how quickly we can do a Depreciation Schedule. Short answer: very.

If you happen to have questions or have a client who needs a Depreciation Schedule, use your booking link to make an enquiry or call our team on 1300660033.

Key points

1. 1. A repair is when a client fixes damage or deterioration to a property that happened WHILE your client was renting out the property. If the damage existed before they started to rent out the property, it’s an improvement.
2. 2. Airbnb properties are treated the same way that residential rental properties are treated in terms of depreciation.
3. 3. There is almost always depreciation in the renovations of older properties – even in renovations completed by previous owners. It’s worth asking the question.
4. 4. We can turnaround Depreciation Schedules quickly – overnight if needed (and with enough information).

‘When is a repair not a repair?’

When it’s an improvement. 

There is a logic to the ATO’s stance on repairs. But first of all, what is the ATO definition of a repair? You can read more from the ATO here.

Generally speaking, it means expensing, claiming immediately in full,  the cost incurred in fixing damage or deterioration to a property that happened while your client was renting out the property.

If the damage existed before your client started to rent out the property, it’s not a repair. And that means we’re in improvement territory i.e. 2.5% per year. So it’s not surprising clients are very keen to claim work as repairs.

And it’s equally unsurprising that the ATO doesn’t share that enthusiasm.

So what is the logic behind it?

Let’s say all repair work done to a property could be expensed. If that was the case, there would be nothing stopping someone from buying a derelict property and expensing the cost to fix it. 

Or someone whose home has developed some problems could move out, turn it into a rental and then expense the cost of repairs.

So the ATO had to draw a line in the sand.

We have written about this previously, most recently here.

‘How do I treat an Airbnb property?’

Airbnb has been around for a long time now – over 15 years. And other short term rental platforms, like Stayz, have been around much longer.

We have had a few clients, and accountants, recently put forward the notion that special rules apply to these properties because they are not ‘normal’ rentals. It’s almost like there was an article somewhere that implied they were some sort of commercial property.

It’s nonsense.

They are just a residential rental property and the same rules apply to them as apply to other residential properties.

They do not qualify for the Short Term Traveller rate of 4% on the Capital Works. The fact that nobody stays in the property for longer than a few weeks is irrelevant – that is just the pattern of usage, it has nothing to do with the nature of the property. You can read more on this here. 

And if the furniture in the property is ‘used’, depreciation can’t be claimed on it. There is a trap here, too. If there is private usage of the property, even brand new furniture can’t be depreciated. ‘Private usage’ lacks a tight definition, but somebody electing to use their Airbnb themselves for several weeks over Christmas and Easter will likely come unstuck.

Other things to be aware of with Airbnb (and similar) properties are the CGT complications and the fact that income date is reported by the platforms direct to the ATO.

‘Is there any depreciation in older properties?’

The misconception that there is ‘no depreciation in older properties’ is a stubborn one. We wrote about it most recently here.

There were changes to the depreciation rules way back in 2017 that are largely to blame for this misconception. But honestly, they were so long ago.

And they only affected the depreciation claimed on Assets, not the building itself. 

Residential buildings where construction started after September 1987 can still be depreciated. Sure, a 1988 built house only has a few years left on it, but your client might as well claim it.

And what about renovations? Lots of rental properties built in the 90s have had renovations – sometimes several – by previous owners. The current owner can depreciate those renos.

More than half the Depreciation Schedules we do on older properties are ones where we need to estimate the cost of renos done by previous owners. There can be thousands of dollars to claim in depreciation in renos done by previous owners. 

What if the property is, say, 100 years old? It will have been renovated for sure and depending on when the renos were done they can be depreciated by the current owner.

If there are photos online, we can even tell your clients how much depreciation we think will be sitting in the property for them to claim.

It never hurts to ask.

‘How quickly can Depreciator turnaround a Depreciation Schedule?’

As we say, it’s that time of year! We hear it every day – a client has come to you to get their tax done and lo and behold, they’ve bought a rental property during the year. They come to you at tax time with everything – except a Depreciation Schedule.

That’s where Depreciator comes to the rescue.

How quickly can we do a Depreciation Schedule? Overnight sometimes. We have even done same day turnarounds on occasion.

These are usually jobs where we don’t need to inspect the property. Perhaps it’s an apartment and we have already been to the building before. Or it might be a brand new house where the construction cost is known and there is a contract listing all the Assets.

There have even been occasions where we have inspected a property the day the enquiry has come in and turned the Depreciation Schedule around overnight.

We always look for the best solution for you and your client. If you have any urgent requests, just let us know. You can do that right now using your booking link. 

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.