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On 02-May-2003, the Australian Financial Review published a story warning property investors that the ATO is scrutinising all depreciation claims lodged by owners of newly built apartment units.
A Tax Depreciation Schedule, also known as a Quantity Surveyor’s Report, enables owners of investment properties contructed after 1985 to claim a tax deduction for the depreciating value of the property and its fittings such as carpets, curtains, hot water units, etc… As these items are all subject to wear and tear and have a limited lifespan, the ATO allows property investors to claim an annual deduction for the reduction in their value.
Generally, one must contact a building surveyor and engage him to inspect and produce a report for your property. The cost for this is usually between $300 and $600, and is well worth having for newly constructed property. As an example, for a new house worth $250K, one might be able to claim a tax deduction of around $4000 in the first year, and $2000 for the subsequent 4 years of property ownership, with lesser amounts for up to 40 years.
However, it is common practice for purchasers of new apartments to receive these depreciation schedules from the apartment builders. Adam Arden, from property consultants Napier & Blakeley, said that investors should not rely upon these as such schedules should be individualised and specific to each unit. Lachlan Wolfers, of law firm Thomson Playford, confirmed this view and stated that investors should not rely on the tax benefits promised to them by the apartment marketeers.
The article went on to add that in 2001, deductions claimed against rental property amounted to some $13.3 billion dollars against $126 billion in rental income. The tax office subsequently contacted 10,000 residential investors requesting more detail on how these deductions were assessed.
Apparently, a recent court decision has thrown some uncertainty over what can be depreciated. Property investors would be best advised to find their own licensed building or quantity surveyor via the yellow pages, and to have their own report done to ensure it complies with current legislation. The ATO is unlikely to reject the depreciation figures contained within a schedule prepared by a licensed surveyor and customised for your property.
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