{"id":7474,"date":"2016-03-22T10:15:36","date_gmt":"2016-03-21T23:15:36","guid":{"rendered":"http:\/\/www.realestatetalk.com.au\/?p=7474"},"modified":"2016-03-22T10:15:36","modified_gmt":"2016-03-21T23:15:36","slug":"deducing-deductions","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/deducing-deductions\/","title":{"rendered":"Deducing deductions"},"content":{"rendered":"<p><strong>It\u2019s a fine line between deductions and pain<\/strong><br \/>\nWithout obtaining a tax depreciation schedule it can be very easy for investors to incorrectly claim deductions for their rental properties.<br \/>\nOne of the reasons depreciation is missed or claimed incorrectly is because investors don\u2019t understand the difference between the types of deductions available.<br \/>\nTwo mistakes often made when claiming depreciation without expert advice include claiming structural items as plant and equipment assets and claiming plant and equipment assets as capital works deductions.<br \/>\nWhile the two types of depreciation have clear definitions, these don\u2019t necessarily help investors to correctly interpret depreciation claims. Below are the key features of capital works and plant and equipment assets.<br \/>\nCapital works deductions:<\/p>\n<ul>\n<li>Apply to the building structure and any fixed asset<\/li>\n<li>Investors can claim deductions for the cost of the original building where construction commenced after the 15<sup>th<\/sup> of September 1987<\/li>\n<li>Investors are entitled to claim a deduction for any other capital works (structural improvements) which occurred within the legislated dates<\/li>\n<li>Deductions are calculated at a rate of 2.5 per cent per year and are based on the historical costs of construction<\/li>\n<\/ul>\n<p>Plant and equipment assets:<\/p>\n<ul>\n<li>Easily removable fixtures and fittings contained within an investment property<\/li>\n<li>Unlike capital works, these items are assigned an individual effective life over which depreciation can be claimed using one of two methods; prime cost or diminishing value<\/li>\n<li>Although depreciating at varying rates depending on the item, deductions for these assets are much higher than those calculated for capital works<\/li>\n<\/ul>\n<p>Based on the above, investors who assign items to the incorrect category could easily claim plant and equipment at the incorrect rate of 2.5 per cent per year, missing out on substantial deductions. Conversely they could claim capital works deductions at a rate too high set for plant and equipment, also putting the investor at risk of an audit from the Australian Taxation Office (ATO).<br \/>\nTo highlight how items should be correctly assigned and claimed, we examine an example for flooring in a brand new investment property. In the case study, all the flooring types have been assigned the same value of $10,000 to provide a direct comparison.<br \/>\n&nbsp;<\/p>\n<p style=\"text-align: center\"><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-7480 aligncenter\" alt=\"TA056-1\" src=\"https:\/\/i0.wp.com\/realestatetalk.com.au.s3.amazonaws.com\/wp-content\/uploads\/2016\/03\/TA056-1.jpg?resize=650%2C306\" width=\"650\" height=\"306\" \/><\/p>\n<p>As you can see from the above example, depreciation for flooring in an investment property is not calculated in the same way. Carpets, linoleum, floating timber and vinyl are considered plant and equipment as they can be removed and replaced easily, while tiles and original hardwood floors are classified as structural items and therefore should be claimed as capital works deductions.<br \/>\nFlooring is just one area easily confused when calculating depreciation. The amount of deductions a specialist Quantity Surveyor will find is magnified, as both a site inspection is performed and a depreciation schedule is provided for the property as a whole.<br \/>\nDeducing the classification of capital works allowance and plant and equipment items is an area of expertise for a tax depreciation specialist. The benefits of asking an expert for advice on depreciation are clear; not only will you receive more when you complete your income tax return, you will also have added security in the event of an audit from the ATO as you will have the information necessary to support your claim<br \/>\nTo learn more, visit the <a href=\"http:\/\/www.bmtqs.com.au\/residential-property-depreciation\/?utm_source=real-estate-talk&amp;utm_medium=article-march-2016&amp;utm_term=residential-property-depreciation&amp;utm_content=deducing-deductions&amp;utm_campaign=real-estate-talk\">residential property depreciation page<\/a> on BMT Tax Depreciation\u2019s website.<br \/>\n<b>Article provided by BMT Tax Depreciation. <\/b><br \/>\n<b>Bradley Beer<\/b><b> (B. Con. Mgt, AAIQS, MRICS) is the Chief Executive Officer of BMT <\/b><b>Tax Depreciation.<br \/>\nPlease contact 1300 728 726 or visit\u00a0<a title=\"http:\/\/www.bmtqs.com.au\/\" href=\"http:\/\/www.bmtqs.com.au\/?utm_source=real-estate-talk&amp;utm_medium=article-march-2016&amp;utm_term=homepage&amp;utm_content=deducing-deductions&amp;utm_campaign=real-estate-talk\">www.bmtqs.com.au<\/a> for an Australia-wide service.<\/b><br \/>\n&nbsp;<br \/>\n&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>It\u2019s a fine line between deductions and pain Without obtaining a tax depreciation schedule it can be very easy for investors to incorrectly claim deductions for their rental properties. One of the reasons depreciation is missed or claimed incorrectly is because investors don\u2019t understand the&#8230;<\/p>\n","protected":false},"author":176692471,"featured_media":7481,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[5,17],"tags":[58,63,124],"class_list":["post-7474","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bmt","category-property-investment","tag-claim-deductions-for-their-rental-properties","tag-deductions","tag-tax-depreciation"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Deducing deductions - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/deducing-deductions\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Deducing deductions - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"It\u2019s a fine line between deductions and pain Without obtaining a tax depreciation schedule it can be very easy for investors to incorrectly claim deductions for their rental properties. 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