Partial year depreciation deductions result in substantial claims. Investors who have only recently purchased an investment property leading up to the end of financial year often postpone getting a depreciation schedule until the following year. However, even if an investor has purchased a property in the last few days of the financial year, it is still worthwhile getting a depreciation schedule.

Usually, the total depreciation deduction available in the first year is adjusted according to the portion of the year the property is owned. For example, if a property is owned and rented for six months, 50% of the yearly depreciation deductions could become available. When a specialist Quantity Surveyor prepares a depreciation schedule, they use legislative tools to help to ensure that the maximum deductions are claimed, regardless of the time a property has been owned and rented. Two of the methods used include immediate write-off and low-value pooling.

An immediate write-off can be applied to any plant and equipment asset added to an investment property which cost $300 or less. This allows the investor to claim 100% of the value back in the same financial year as the asset was added to the property, regardless of how many days the property has been owned and rented.

Low-value pooling can also be used to maximise deductions over a shorter period of time. Low-cost assets (items within an investment property which cost $1,000 or less) can be placed in a low-value pool and depreciated at a rate of 18.75% in the first financial year. In the second year, both low-cost assets and low-value assets can be depreciated at a rate of 37.5%. This includes items which originally cost more than $1,000, but the remaining depreciable value after the first year’s depreciation claim is less than $1,000.

Confusion can arise when there are multiple assets of the same type within an investment property. Although assets which form part of a group cannot be individually written off, they may be able to be depreciated individually in a low-value pool. For example, if a house has a set of six blinds costing around $3,000, it would seem that the set does not qualify for the extra depreciation. However, as these blinds individually cost $500, they will qualify for the low-value pool. A specialist Quantity Surveyor will ensure that the deductions outlined in a depreciatioschedule are claimed correctly and deductions for each asset are maximised.

The following example shows how one investor who recently purchased an investment property was able to benefit from depreciation deductions after only owning a property for twenty days. The investor purchased a two year old property for $680,000 on the 10th of June. They contacted a specialist Quantity Surveyor leading up to settlement to ensure they could claim depreciation deductions in that financial year. The Quantity Surveyor performed a site inspection of the property and discovered it contained a number of plant and equipment items as displayed in the table below. The deductions for each of these assets were outlined in the schedule appropriately for the investor’s Accountant to process their claim when completing their annual income tax return. A number of assets cost below $300 and were eligible for an immediate write-off. Assets which qualified for the immediate write-off resulted in $1,358 in deductions for the first twenty days for the property investor. Low-value pooled assets which cost less than $1,000 equated to a claim of $1,684 for the first twenty days for the property investor. The remaining assets were all depreciated based on their individual effective life and scaled down based on the small proportion of the financial year the property had been owned and income producing. These account for the remaining $353 in plant and equipment deductions.

Deductions for capital works or the structural portion of the property (for example bricks, mortar, walls, flooring and wiring) totalled to $545. By obtaining a depreciation schedule after just twenty days the investor was able to claim a total of $3,940 in deductions. This example shows that even when an investor has only owned and rented a property for a few weeks of the financial year, the deductions claimed from depreciation can still make a significant difference for the investor. An investor should always seek the services of a specialist Quantity Surveyor to maximise the depreciation benefits for their property, particularly as correctly identifying assets and attributing the type of claim correctly can be quite a complex process.