The following article is from ‘Maverick’, a quarterly newsletter produced by BMT Quantity Surveyors. For more information on this and other property tax advice, please contact BMT or your accountant/financial advisor.
Our property investor clients often ask the question whether it is best to purchase an old or new property in terms of the depreciation benefits the property will provide the owner.
Even the owner of a property constructed prior to 1987 can receive an average depreciation deduction of $4,899 in the first full financial year alone.
While owners of brand new properties will receive higher depreciation deductions, as shown by the average deduction of $12,680 in the first full financial year, it is always worthwhile asking a specialist Quantity Surveyor what can be claimed no matter how old a property is.
Owners of newly constructed properties are entitled to claim capital works deductions for the full 40 years, while owners of older properties where construction commenced after the 15th of September 1987 can claim capital works deductions each year for the remaining 40 years.
Although the Australian Taxation Office places restrictions on capital works deductions based on the construction commencement date of the property, there are no such restrictions for plant and equipment assets. Their value is determined by the condition, age and quality of each asset. A fair value is determined for these assets and the effective life will start from the date of settlement.
In summary, the key findings from our data suggest that the majority of Australian property investors own just one property and not large portfolios. We can also see that 78.5 per cent are buying second hand properties, up from 70.4 per cent in the previous financial year.
The data also provides a reminder for investors to discuss the depreciation deductions they can claim for any property purchase. These deductions can be substantial no matter what age the building is and whether it is a house, a unit, a townhouse or a duplex.
Some of the specific details in this article may not apply to all property investors. To find out if it will apply to you, please visit this link.