Frequently asked questions regarding reports
Short Answer: Not every component of your property is depreciable.
While the building and its fixtures and fittings depreciate over time, the land itself does not. This means when you buy a property, a significant portion of its cost, attributed to the land value, is excluded from depreciation.
Furthermore, assets within your property depreciate at varying rates based on their projected useful life, as set by the Australian Taxation Office (ATO). Some items might lose value faster than others, leading to fluctuations in annual depreciation amounts. There’s also the consideration of residual value, which is an asset’s estimated worth at the end of its depreciation cycle. Depreciation captures the decline in an asset’s value from its initial cost down to this residual value, but not beyond it.
Additionally, specific costs related to your property might be immediately deductible in the year they occur rather than being spread out as depreciable amounts. As you continue to own the property, renovations and improvements can also influence its depreciable value, albeit separately from the original purchase price. Lastly, the method of depreciation calculation you choose, be it the Prime Cost or the Diminishing Value method, can result in different depreciation values over the asset’s life.
Short Answer: No.
The standard depreciation period for the building structure of residential properties, as set by the Australian Taxation Office (ATO), is 40 years (2.5% each year). For residential properties, it’s not possible to depreciate over a 25-year period. Depreciating a property over 25 years (4% a year) is only set for specific commercial or industrial properties such as manufacturing.
Due to legislation changes in 2017, plant & equipment (division 40 – e.g. lights, blinds, appliances, flooring) can no longer be claimed in every scenario. Essentially, second-hand plant & equipment can no longer be claimed for residential tax depreciation. Some of the following scenarios describe where division 40 cannot be claimed:
- Purchasing a second-hand property and not installing any new plant & equipment in it.
- Purchasing a brand new property and living in it (for any amount of time) before renting it out.
- Installing new items in your property while living in it before renting it out.
There is an exemption for companies that can still claim division 40 in any of these circumstances.
If you purchased a property second-hand and installed some new items in it while the property was vacant or rented, you will be eligible to claim these costs. If your report does not show those items as claimable in your report, please reply to the email we sent you, and we will be happy to update your report at no cost.
The diminishing value method of depreciation only applies to division 40 items (e.g. lights, blinds, appliances, flooring). If your property is not eligible to claim depreciation on division 40, no diminishing value schedule will be included as there are no items to claim.
For any extensive work under $50,000, amending your Thrifty Tax report will be free. Where you have undertaken more major renovations, a fee of $50 (inc. GST) will be charged as there is a fair amount of work in adding those costs into your current schedule.