How to: Check your depreciation entitlements

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Like a brand new car, new apartments and contents depreciate in value almost immediately but many investors are not aware of the depreciation benefits they are entitled to claim.

The Australian Tax Office enables investors to cover part of the purchase price by allowing them to claim depreciation on certain items like fittings and fixtures at the end of every financial year.

Although there is no percentage that fits all off the plan purchasers, Matusik Property Insights director Michael Matusik says up to 60% of the built cost of a new apartment can be tax-deductible over time.

Purchasers of off the plan apartments can take the contract of sale to a quantity surveyor to have a depreciation schedule put together, as the contract will detail inclusions such as price, size of the unit and size of the building.

A tax depreciation company can also inspect a property to determine the current value of every item and will then calculate how much value each of those items will lose every year for up to 40 years.

However, Multifocus Properties and Finance chief executive officer Philippe Brach says to get a definite schedule that an accountant can use, the property must be settled as the settlement acts as the starting date for the depreciation entitlement.

The depreciation report is submitted at the end of every financial year and is allowed to be back dated by up to two years.

BMT Quantity Surveyors director Brad Beer says on average investors can claim between $5,000 and $10,000 as a first full-year deduction.

Brach says for the first few years, depreciation will fall away rapidly but is largely compensated by rising rent revenue in keeping the cash flow constant.

“After about 10 years, depreciation will stop declining but rent will still keep rising, therefore the cash flow starts increasing,” says Brach.

Property investor Cameron McEvoy says the amount an investor can claim is always much higher in the first few years.

“It goes without saying that the figure for say year three, will be much higher than year 27.

“This is due to the gradual degrading value of items.

“More often that not, properties that are one to five years old have the most depreciable potential,” says McEvoy.

Brach advises that when looking at potential investment properties, fittings and fixtures should be taken into consideration when short-listing apartments as they will give high depreciation in the early years.

Off the plan buyers should be able to obtain a depreciation schedule from the developer free of charge to help them work out their numbers properly but if one is not available, a report can be constructed for around $300 to $1,000 through a depreciation specialist.

“Without a schedule, your cash flow may be way out of reality and you investment decision will be wrong,” says Brach.

The one-off report fee is also tax deductible.

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