Property tax allowances - increasing the return on residential property investments

May 2001

Property tax allowances are a valuable aspect of any property investment due to their ability to enhance an investor's return and produce a better cashflow.  However, a high level of expertise is required to ensure that investors obtain maximum allowable entitlements.

What are property tax allowances?

Property tax allowances form part of the Income Tax Assessment Act 1997 (hereafter called 'the Act') and provide an opportunity for owners of income producing property to reduce their assessable income.  There are a number of property tax allowances available to property owners, investors, and developers, including allowances for building structure and depreciation on plant items. Property tax allowances are often simply referred to as property depreciation.

Can property tax allowances increase my investment return?

Property tax allowances can reduce an investor's assessable income, and by correctly claiming and maximising these deductions, investors can significantly enhance the after tax return from their investment and generate a healthier cashflow.

What allowances are available for my investment?

Depreciation Allowances (Division 42 ITAA 1997)

Depreciation allowances are available to owners of plant in both new and second-hand properties that produce assessable income.  There is no definition of plant under the Act.  However, attached to Income Tax Ruling 2000/18 there are over 850 items of plant that may be depreciable including carpets, air conditioning and light fittings. Depending on the property's specifications, furnishings and sale contract conditions, owners may be eligible to claim between 10% - 20% of the building's value as depreciable plant.

Building Allowances (Division 43 ITAA 1997)

Income producing buildings can be eligible for building allowances, provided construction commenced after 17 July 1985, or in the case of short term travellers accommodation after 20 August 1979.  The rate of write-off is either 2.5% p.a. or 4% p.a. dependent upon construction commencement date.

Building allowances apply to the overall qualifying component of the original or refurbishment construction cost.  These are calculated from the date of completion of construction (excluding the cost of all plant and non-eligible items).

The following table shows an example of the property tax allowances available to property investors when claims are professionally prepared.

Additional Claims

Renovations, extensions, repairs, and write-off of demolished works can provide additional opportunities for the investor to increase the deductions and return on their property.

How do I submit a claim?

To submit a property tax allowances claim to the Australian Taxation Office (ATO), an investor should request a property tax allowances schedule from a professionally qualified person.  Quantity Surveyors are professionally qualified persons under Tax Ruling 97/25 and their schedule will substantiate an investor's depreciation claim upon lodgement of their tax return with the ATO.

How is my claim analysed?

Since all properties are different, a standard approach to depreciation cannot be applied. In order to maximise the deductions available for each specific property and to substantiate the claim to the ATO, N&B Residential Depreciation conducts a thorough on-site inspection of the premises.  Following the inspection a Quantity Surveyor will examine all available drawings and documents, then calculate the appropriate deductions and allowances for the property.

When should I obtain a property tax schedule?

The best time is usually as soon as possible after settlement.  Our staff can then identify items included in the original purchase price as distinct from any items and/or expenses incurred during the remaining period of the property ownership.  The ability to analyse these costs allows for greater accuracy and maximum returns from the calculation of depreciation and building allowances.

How much will this service cost?

Fees are structured to reflect the building type, volume of reports required (multiple units within one complex may attract a discounted fee) and the depth of analysis required.  N&B Residential Depreciation would be pleased to provide an obligation free proposal for your specific property investment.  All fees are tax deductible in the year of payment.

Do I have to purchase a property tax allowances schedule each year?

Our property tax allowances schedule includes a summary of the investor's tax claims for the initial ten years.  However, should any of the property's specifications change through refurbishment, extension, or demolition during that time, an additional report should be generated to achieve the maximum allowable deductions.

What happens if I am audited?

Should the ATO audit an investor, items within the schedules may need to be defended. N&B Residential Depreciation will defend all items included in their schedules as required.  Whilst the defence of our schedules will not form part of the initial fee agreement, N&B Residential Depreciation will provide continuing professional services for clients following delivery of the property tax allowances schedule.

What is a Quantity Surveyor?

A Quantity Surveyor is an independent professional consultant to the construction and property industries.  Typically, Quantity Surveyors provide construction cost advice to property owners, investors, and developers.   However, N&B Residential Depreciation offers investors specialist advice on property tax allowances relating to income producing properties.

Who is N&B Residential Depreciation?

N&B Residential Depreciation is part of the Napier & Blakeley Group, an international firm of Quantity Surveyors who have specialised in providing property tax allowances advice in Australia since 1985. Our research division monitors all legislation changes and ATO interpretations ensuring a seamless and cost effective service to property owners, investors and developers across Australia.  The firm today employs over 100 professional managers and staff at offices in Melbourne, Sydney, Brisbane, Gold Coast and Sunshine Coast.

Contact N&B Residential Depreciation Quantity Surveyors:
Direct Call: 1300 790 790
Direct Fax: 1300 133 387
E-mail: resdep@napier.net.au
Mailing Address: GPO Box 9951 (in your local capital city)