Investing in property is one of the most effective ways to build wealth and secure financial stability. For property investors, maximising returns is key, and one often-overlooked tool for doing so is a depreciation report. This document, compiled by a qualified quantity surveyor, outlines the deductions available for the decline in value of certain assets in your investment property. Here's why every property investor, especially those owning apartments, should prioritise obtaining one.
But before we begin, let's debunk some myths...
"Only New Properties Benefit from Depreciation"
While new properties tend to have higher depreciation rates, older properties still have claimable deductions, particularly if they've been renovated.
"It’s Expensive and Not Worth It"
The cost of a depreciation report is typically tax-deductible itself. The savings from deductions often outweigh the initial expense within the first year.
"I Can Estimate Deductions Myself"
Without professional expertise, you’re likely to miss key deductions. Quantity surveyors are trained to identify and calculate all eligible assets, ensuring you get the maximum return.
What Is a Depreciation Report?
A depreciation report details the amount of depreciation you can claim on an investment property over time. Depreciation refers to the natural wear and tear on the building's structure and its assets, such as appliances, flooring, or even light fittings. Australian tax law allows property investors to claim this depreciation as a deduction, which can significantly reduce their taxable income.
Why Is It Crucial for Apartment Owners?
Owning an apartment as an investment property comes with unique opportunities for claiming depreciation. Here's why:
Higher Proportion of Eligible Assets
Apartments typically include shared facilities, such as gyms, pools, lifts, and parking areas. These assets contribute to what is known as a Division 43 (Income Tax Assessment Act 1997) deduction (capital works deduction) and may also qualify under Division 40 (plant and equipment) if your share in those facilities is covered.
For example, the depreciation of a shared elevator system or communal gym equipment can be claimed by all apartment owners proportionally.
Newer Builds Are Especially Lucrative
Many apartments are built to modern specifications and feature premium fixtures, which can have higher depreciation rates. If your apartment was built after July 1985, you're eligible for capital works deductions. Newer apartments often include features like energy-efficient appliances or smart home technology, which fall under plant and equipment deductions.
Renovations and Upgrades
If the apartment or the building has undergone renovations, the costs can add significantly to depreciation claims. Even if you didn’t fund the renovation, as an owner, you might still benefit from claiming depreciation on these improvements.
Depreciation Reports are a powerful tool for Australian property investors, especially for those owning apartments in strata communities. By understanding and leveraging these deductions, you can optimise your tax position, improve cash flow, and ultimately maximise your investment returns.
However, effective property investment isn't just about tax savings—it also requires well-managed strata communities to protect and enhance the value of your property. That’s where Compass Strata can help. With expert strata management services, Compass Strata ensures that your community is well-maintained, financially sound, and compliant with all regulations.
