There are some significant savings and advantages available to investors who are looking to renovate / upgrade their investment property. Whilst we are not financial advisors or accountants the information below has been taken from the ATO website and is available online in detail at: www.ato.gov.au/individuals/investments-and-assets/Residential-rental-properties
For capital works undertaken to properties after August 8th 1992 – Structural improvements intended to used on completion for residential purposes or to produce income can be claimed at 2.5% per annum. This equates to the value of the renovations being able to be deducted over the course of 40 years.
Whilst you can start claiming the capital works deductions upon completion, it is important to remember that there are some items that cant be claimed such as landscaping. Construction costs must be evidenced by either of the following:
• Precise documents that show the construction costs such as receipts
• A report written by an appropriately qualified person.
There is also the "Residual Value Write-Off Deduction" which can allow owners to claim the balance of depreciation left on items when you throw away or demolish them. An article from www.realestate.com.audescribed this as 'Let's say you have an income-producing investment property that you purchased in 1994. It's now 2014 and kitchen is looking a bit dated.
Because the ATO has determined that a kitchen should last 40 years (or until 2034), you still have 20 years' worth of available capital works and plant and equipment deductions. For a kitchen originally valued at $15,000, that's a $7500 residual value deduction when you remove it.
Even better, after you put in a new kitchen, the 40-year cycle depreciation cycle begins again. The only catch is that the item removed must be income-producing both before and after the renovation was done in order for you to claim the depreciation.' There are many ways you can maximise your renovation deductions if you know what to do. Some
tips on getting the most value out of your property's renovations.
1. Get A Pre-renovation Depreciation Schedule
To avoid missing out on any valuable deductions, be sure to get a depreciation schedule before renovating. Even if your property is 100 years old, any renovations that were completed after July 1985 can still save you money, regardless of who did them.
2. Get A Depreciation Schedule After Renovations Are Done
Don't wait too long to get a depreciation schedule after you're done renovating. The best time to get one done is right after the renovations are complete in order to capture the most current values and to avoid disruptions to tenants.
3. Take Into Account The Cost Of Items
Individual items that cost less than $300 can be written off immediately – so it's worth looking for a microwave that costs $299, rather than $301.
For a more in-depth look into maximising your renovation claims on your investment property, the website above has some invaluable information available. Additionally we have access to some wonderful Quantity Surveyors who can assist you with a depreciation schedule for your property.
It is worth noting that it is never too late to get a depreciation schedule done, especially if you are considering renovating your investment property. Talk to our wonderful property managers and they will be able to assist in guiding you in the right direction!