Are You Taking Full Advantage of Your Income-Producing Property?

If you have a diverse portfolio, then you may well own some residential properties within the rental market that produce a regular income for you. You will, of course, need to claim this income on your tax return and may be used to offsetting certain expenditure to reduce your obligation. However, while you may include maintenance charges, repair costs, council rates and property management fees, you may be missing out on a potentially substantial deduction for tax depreciation. How can you claim what you are entitled to?

Capital Works Allowance

The accounting industry treats depreciation in two different ways, as it relates to income-producing properties. Firstly, you will be able to claim what is known as a capital works allowance, that generates a figure related to structural wear and tear. In most cases, you will be able to claim a deduction based on a small percentage of the building value. 

Plant and Equipment

Of more interest should be the secondary category, which relates to plant and equipment depreciation. This looks at everything else within the property and itemises all the individual fixtures and fittings on a list. There are several thousand categories involved here that deal with assets as diverse as the carpet, smoke alarm, air conditioning system or window treatment. Each asset is assigned a specific, usable life and has its own rate of depreciation accordingly. 

Drawing Up the List

As you can imagine, it can be very difficult to keep up with these calculations, especially if you have a larger property with many fixtures and fittings within. Furthermore, you cannot simply draw up this list yourself, as you must employ a qualified quantity surveyor to do it for you. The government gives this license to a select few professionals and they are charged with the responsibility of creating the depreciation schedule. This legal document is then used by an accountant to figure out how to apply depreciation to your tax return.

Making a Difference

When you itemise these details properly on your tax return, it can make a significant difference to your available cash flow throughout the year. You may be able to claim several thousand dollars' worth of depreciation deductions in the first year of ownership and continue to reap the benefits as time goes by.

It's Teamwork

Nevertheless, you must make sure that you do this properly and should only engage professionals with experience. Remember, you will need a quantity surveyor in the first case and an accountant to help you decipher the information.

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