Our first depreciation story detailed the depreciation tax breaks investors can claim on a new investment property. But many investors miss out on tax breaks in the mistaken belief they don’t apply to older properties. They do—and here’s why. If a property was built after 15 September 1987 you can claim depreciation for the years remaining until the property is 40 years old. How might this work? If a property was built in, say, 1990, you can claim depreciation until 2030 (note: the deduction would be 2.5% of the cost of building in 1990, not the current cost). So if that house cost $100,000 to build in 1990, you’d be able to claim $2,500 each year until 2030, ie. Tax breaks on depreciating assets are available no matter how old the property is. So carpets, curtains, bathroom fittings, dishwasher and washing machines qualify for depreciation as they age. The Australian Tax Office (ATO) lists all the items you can claim on and for how long. Dubbed ‘The Effective Life’ , this decrees how long an item will last before it needs replacement.

For instance, a carpet’s life is 10 years, a kitchen stove lives for 12, while a rubbish bin lasts 10. Tax breaks are claimed over the same timeframe, no matter if the property is old or new. When a quantity surveyor prepares a depreciation schedule for an older property, they put a value on each taxable item. For example, if a property’s carpet is already 20 years old, the quantity surveyor might give it a value of $1,200. This’ll give the investor a $120 tax deduction each year (though once the carpet’s written-down value falls below $300, the investor receives the remaining $300 deduction in that taxable year). You have two options if you claim this tax break—you can choose the Prime Cost Method, or the Diminishing Value Method. While the total amount of depreciation you can claim works out the same, the different methods determine when you get it. This gives you the same annual tax deduction for the item’s effective life. Here you get higher claims in the earlier years of the item’s effective life, and smaller ones later on.

Most investors opt for this as they receive higher tax breaks sooner. Your accountant will advise which method is best for you. For more information on what you can claim, the Australian Tax Office (ATO) has a The information in this article has been written by Michael Sloan from The Successful Investor. While Mr Sloan has been careful to ensure the information is correct and accurate, Mr Sloan’s views are his own and do not necessarily represent those of National Australia Bank Limited ABN 12 004 044 937, AFSL and Australian Credit Licence 230686 (NAB). ikea sailcloth curtainsThis information should not be relied upon as financial product advice as none of the information provided takes into account your personal objectives, financial situation or needs. made to measure curtains dartford

NAB recommends seek the counsel of an independent financial advisor before making any investment decision.It’s a common question among new property investors: “What’s the difference between repairs, maintenance and improvements?” This is important stuff to know if you’re going to invest in property because it affects your tax deductibility and hence your cash flow. Many landlords forget about the new tap or roof repair that they can claim a tax benefit for because their primary focus is on rental returns and capital gains. eclipse curtains theodoreBut it’s the smaller things that can add up to a big tax advantage if you document every item. mufc curtainsSo the first thing to do is understand the difference between them. 1. A repair is usually partial and restores something to its original state eg.

repairing part of a fence by replacing two palings 2. Maintenance is work that prevents deterioration or fixes current deterioration eg. painting your property or oiling the garage door Repairs and maintenance must relate directly to wear and tear or damage that occurred due to renting out your property. The ATO provides the following examples of repairs and maintenance for which you can claim an immediate deduction in the same year. 3. An improvement makes something better than it was originally or provides something in a new and more valuable or desirable form. They generally improve the property’s income production or expected life. A repair becomes an improvement when you go beyond simply restoring an item to its original function. For example, if you replace a worn paling fence with a brick fence, you are going beyond simply repairing the fence – you are improving the fence with a better material The ATO provides the following examples of improvements. The differing tax benefits between a repair, maintenance and improvements

Generally speaking, you can claim an immediate deduction for repairs and maintenance in the same financial year, as long as your property is being rented out Generally speaking, you can claim a capital works deduction or a deduction for decline in value (depreciation) over a number of years for improvements The ATO provides the following examples as to which improvements should be depreciated and which ones attract a capital works deduction. Important note for new investors When you buy an investment property, there are often items that need repairing before you can lease the property out. The ATO has a name for this – they’re called ‘initial repairs’. They are not deductible. Instead, they are considered part of the acquisition costs of the property  and may be included in the capital gains tax cost base. All the information above is general in nature. Use it as a guide only. As with most tax stuff, it’s important to get professional advice. Speak to your accountant regarding individual repairs or improvements and get a quantity surveyor to take stock of all the items in your property that are depreciable.