It’s that time of year. October is out of the way and that horse race has been run and we can sit back and ponder the more outlandish things people have asked us to put into their Depreciation Schedules.

And isn’t it good for you that they ask us? We’re like a filter – we get rid of the rubbish and put everything into a nice clean Depreciation Schedule for you. 

We’ve been doing this filtering for nearly 25 years. We’re ready to help you out now if you have any clients you need to refer. You can use your link here. 

There is an understandable logic to some of the things we filter out, but not all.

Thinking demolition is part of depreciation is logical, but mistaken.

And landscaping can be complicated.

Somebody recently tried to claim sunglasses. And a hat.

Travel costs and tools used in DIY renos also trip people up.

Key Points

1. 1. Demolition and site clearing are not depreciable – if the structure has gone, there is nothing left to depreciate.
2. 2. ‘Hard’ landscaping, or the structural components of landscaping, can be depreciated. ‘Soft’ landscaping – bark chip, turf, plants etc – can not be depreciated.
3. 3. Travel costs to and from your client’s rental property while they’re renovating cannot be claimed, nor can they claim for their own time, or for the lunches that get them through the renovation.
4. 4. And then there’s the more outlandish claims. Tools that they’ve used in the renovation can’t be claimed on depreciation either – unless the tools have been left in the property for the tenant’s use. 

Demolition

We get it.

There is logic to assuming demolition should be wrapped up in depreciation. Here’s how we explain why it isn’t: depreciation is compensation for wear and tear on a structure (or Asset). If that structure has gone, there is nothing left to depreciate.

So demolition and site clearing are not depreciable, but you would add them to the cost base of the property.

There is an interesting opportunity, though, when a structure containing asbestos is demolished. Typically, it’s an old garage making way for a granny flat.

The government is keen to get asbestos out of the waste stream and there is a provision to claim the removal and disposal of asbestos in a rental property as an immediate tax deduction. You can read more about this from the ATO here.  

This happens a fair bit and we fear lots of people are not taking advantage of some big tax deductions. Old garages, asbestos fences and roofs in rental properties all get demolished at some point, and the disposal of them could be a big tax deduction. It’s worth investigating.

Landscaping

It can be expensive, landscaping around a new house. So not surprisingly people want to claim depreciation on it.

And they can.

Sort of. 

They can claim for ‘hard landscaping’, but not ‘soft’ – they’re the ATO’s terms.

We recently had a client who spent thousands of dollars on turf and trees and plants and were dismayed that they couldn’t depreciate it.

So in our chat with them, we went back to the principle behind depreciation i.e. compensation for wear and tear on a structure. 

A driveway, retaining wall, fence. Pergola, they’re all structures and have an Effective Life which dictates their depreciation rate.

Bark chip and gravel don’t have Effective Lives – they can wash away.

Turf doesn’t have an Effective Life.

Neither does a geranium.

Travel costs and tools

It makes sense for people to save money by doing work on their rental properties themselves if they can, whether it’s repairs, or improvements.

And the ATO are happy to recompense people for what they spend on materials. We last wrote about this here.

But what they won’t compensate people for is the time they spend on that work.

Or the time they spend driving to their property.

Or the KFC they buy on the way to sustain them.

Or the dog food they had to buy for the dog they took with them. Their logic was that the dog would be working as sort of a guard dog on site to watch over their tools.

(It reminds us of a story a tradie told us once. He bought a mean dog specifically to chain on the tray of his ute to guard his tools when he was on site in a dodgy area. Somebody stole the dog.)

They’re all things that people thought we could add to their Depreciation Schedule.

Outlandish claims

Sometimes we’re sure people just ‘try it on’.

They send us stuff and hope we don’t read it. But read it we do because we need to work out where it goes on a Depreciation Schedule – and if it belongs there at all.

People buy tools to work on a property, but keep the tools at home i.e. they are not for the use of the tenant.

One client this year put a nice pool into his rental property (lucky tenants) and had to ship in water to fill it. He was flabbergasted that water could not be depreciated.

Another client thought it  perfectly reasonable that the sunglasses (and jaunty hat) he bought to mow the lawns at his property belonged in a Depreciation Schedule.

We’ve written before about outlandish claims, you can read more here.

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.