When to Get a Depreciation Schedule for Your Investment Property
As a property investor in Australia, understanding when to obtain a depreciation schedule is crucial for maximising your tax benefits and optimising your investment strategy. This comprehensive guide will explore the ideal timing for getting a depreciation schedule and why it’s such an important tool for property investors.
What is a Depreciation Schedule?
Before delving into the timing, let’s briefly recap what a depreciation schedule is. A depreciation schedule is a detailed report prepared by a qualified quantity surveyor that outlines all the tax deductions available for the wear and tear of your investment property and its assets over time. This document is essential for claiming depreciation on your tax return and can significantly reduce your taxable income.
The Ideal Time to Get a Depreciation Schedule
1. Immediately After Purchase
The optimal time to obtain a depreciation schedule is immediately after purchasing an investment property. Here’s why:
- Maximise Deductions from Day One: By having a schedule in place from the start, you ensure that you’re claiming all eligible deductions from the moment your property becomes income-producing.
- Accurate Assessment: A quantity surveyor can assess the property in its original condition, providing the most accurate depreciation calculations.
- Cash Flow Benefits: Early depreciation claims can provide a much-needed cash flow boost, helping offset the initial costs of property investment.
2. Before the End of the Financial Year
If you’ve owned your property for some time but haven’t yet obtained a depreciation schedule, aim to get one before the end of the financial year. This timing is crucial because:
- Current Year Claims: You’ll be able to include depreciation deductions in your tax return for the current financial year.
- Potential for Back-Claims: A quantity surveyor can provide figures for previous years, allowing you to potentially amend past tax returns and claim missed deductions.
Special Circumstances
1. After Renovations
If you’ve recently completed renovations on your investment property, it’s an ideal time to update your depreciation schedule. Renovations can significantly impact your depreciation claims, potentially increasing your deductions.
2. When Considering a Property Purchase
Even before finalising a property purchase, it can be beneficial to get a depreciation estimate. This can help you assess the potential tax benefits and factor them into your investment decision.
Why Timing Matters
1. Maximising Tax Benefits
The sooner you have a depreciation schedule, the sooner you can start claiming deductions. As BMT Tax Depreciation points out, investors found an average first-year deduction of almost $9,000 in the 2022/2023 financial year.
2. Avoiding Missed Opportunities
Delaying your depreciation schedule could mean missing out on significant deductions. While you can typically back-claim for two years, it’s best to start claiming as early as possible to maximise your benefits.
3. Cost-Effectiveness
The cost of a depreciation schedule is tax-deductible. By obtaining it before the end of the financial year, you can claim this expense in the current tax year, reducing the time you’re out of pocket.
What if You’ve Delayed Getting a Schedule?
If you’ve owned your investment property for some time without a depreciation schedule, don’t worry – it’s not too late. Here’s what you can do:
- Get a Schedule Now: Even if you’ve owned the property for years, a current depreciation schedule can still provide valuable deductions.
- Back-Claiming: Your quantity surveyor can provide figures for previous years, allowing your accountant to amend past tax returns where possible.
- Partial Year Claims: If you’ve only owned the property for part of the financial year, you can still claim depreciation for that period.
Considerations for Different Property Types
New Properties
For brand new properties, it’s crucial to get a depreciation schedule as soon as possible. These properties often offer the highest depreciation benefits, particularly in the first few years.
Older Properties
While older properties may have fewer depreciable items, they can still offer significant deductions, especially if renovations have been carried out since 1987.
The Process of Getting a Depreciation Schedule
- Choose a Qualified Quantity Surveyor: Ensure they’re recognised by the Australian Taxation Office (ATO) for preparing tax depreciation schedules.
- Property Inspection: The surveyor will conduct a thorough inspection of your property.
- Report Preparation: They’ll prepare a comprehensive report outlining all depreciable items and their values.
- Provide to Your Accountant: Your accountant will use this report to maximise your tax deductions each year.
Timing is crucial when it comes to getting a depreciation schedule for your investment property. Ideally, you should obtain one immediately after purchase or before the end of the financial year. However, even if you’ve owned your property for some time, it’s never too late to start benefiting from depreciation deductions.
Remember, a depreciation schedule is a one-time investment that can provide benefits for the life of your investment property. By understanding the importance of timing and acting promptly, you can ensure you’re maximising your tax benefits and optimising your property investment strategy.
Always consult with a qualified quantity surveyor and your accountant to ensure you’re making the most of the depreciation benefits available for your specific investment property.