It’s almost that time of year again as End Of Financial Year creeps up and landlords start thinking about lodging their income tax returns.
It’s important to note, that even if an investment property has only been owned over a short period of time, that there are in fact still depreciation benefits that landlords can claim, especially for recently purchased properties.
Let’s explore how some partial deductions could potentially be claimed.
Deductions for “Partial Year” depreciation
For a property to be genuinely considered for rent, it must in fact be given broad exposure to potential tenants in a condition that doesn’t deter potential tenants from renting the property. With this in mind, landlords can claim pro-rata depreciation for the time their property is either rented or genuinely available for rent.
In relation to properties which are used for both private and income-producing purposes, owners are eligible to claim deductions where it is income producing. This amount would in fact be calculated as a percentage, so for instance… if the property was income producing 60% of the time then 60% of all eligible costs are considered tax deductable.
For holiday homes and short stays, partial year deductions are common especially since many short stays are popular during certain busier times of year like New Years, long weekends and school holidays.
Another situation where partial year deductions apply is when the property was previously used as a primary place of residence. The immediate write-off rule and low-value pooling can be used to maximise deductions in a partial financial year. The following points courtesy of BMT Tax Specialists extrapolate some of these important points further.
Immediate write-off
The ‘immediate deduction’ is a straight-forward incentive for residential property investors. It allows an immediate tax deduction for any new asset that costs $300 or less.
For instance, if you purchased a light fitting valued at $150 for your investment property, you can claim 100 per cent of the cost in the year of purchase.
Low value pooling
Assets that cost, or have a value, less than $1,000 can be placed in a low-value pool. This pool unlocks depreciation sooner, as assets contained within the pool can be claimed at a rate of 18.75 per cent in the year of purchase regardless of the length of time that the property has been owned or rented. After the first year, the remaining balance of the item can be depreciated at a rate of 37.5 per cent per year.
The difference between low-cost and low-value assets.
Low-cost asset: a depreciable asset that has an opening value of less than $1,000 in the year of acquisition.
Low-value asset: a depreciable asset that has an opening value of greater than $1,000 in the year of acquisition but the value after depreciating over time is now less than $1,000. This will only apply if you have previously used the diminishing value method.
For instance, if you purchased an air conditioning unit valued at $1,800 it can be depreciated using the diminishing value method. Once its depreciable value falls under $1,000, it will then be added to the low-value pool as it’s considered a low value asset. However, if the air conditioning unit was purchased for $950 it would automatically be added to the pool as a low-cost asset.
It’s important to note that once an asset is added to the low-value pool it cannot be taken out.
So that’s a snapshot of how landlords can take advantage of partial deductions. For further clarity it might be worth discussing this with your accountant or reaching out to your agent to put you in touch with a depreciation tax specialist.
* This information is general in nature and not intended to be financial advice.
* Reach out to myself or my team at Meridien Realty for the best real estate assistance and expert advice on what’s happening in your local market. Whether you’re looking for a top selling agent or professional property managers to rent your property you can rest assured we’ve got you covered with the best advice.
