Houses vs. Units: Differences in Property Depreciation

A common question of property investors regarding tax depreciation is, “Why does a unit obtain more depreciation deductions than a house?” Whilst differences in depreciation deductions for each property type are not always obvious, it is beneficial to investigate the reasons this may transpire.

When depreciation deductions available in a property are figured, factors which affect calculations include: purchase price of the property, date which construction commenced, settlement date, land value (where relevant) and the fittings and fixtures within the property.

Why does a unit usually draw higher depreciation deductions?
Units often contain more fixtures and fittings than a house. Owners of a unit can not only claim items within the strata unit (i.e. lights, carpet and dishwashers), they are also entitled to claim their share of the common property. Common property includes items like driveways, pool pumps, outdoor furniture, lifts and common fire stairways.

The following example compares a unit and a house (both with the same purchase price, construction date and settlement date), there is a difference of $15,000 in depreciation deductions over the first 5 years of ownership.

Note: When purchasing a strata unit there are other costs, such as strata fees, to consider as an ongoing cost of ownership.

Why consult a Quantity Surveyor to construct a Tax Depreciation Report?
Specialised Knowledge and Expertise:

Australian Taxation Office (ATO) legislation recognises Quantity Surveyors as qualified to estimate construction costs for depreciation purposes. Accountants and Real Estate Agents may on occasion estimate depreciation figures, but such professions lack construction cost knowledge and the capability to accurately determine the depreciation deductions available in an investment property. Most importantly the ATO does not recognise their figures in a tax return. Consulting a Quantity Surveyor who specialises in depreciation, like BMT Tax Depreciation, will guarantee the investor gets the maximum deductions available.

Accurate Record Keeping:
More than likely a site inspection will take place to allow the Quantity Surveyor to establish the maximum number of plant an equipment items within the property. Measurements, photos and notes are taken to enhance the depreciation report. If an investor is audited by the ATO, their depreciation claim will be supported by evidence documented at the time of inspection.

Fee is Tax Deductible:
Once a Quantity Surveyor has been engaged to complete a tax depreciation report on an investment property, any fee associated with the production of that report is 100% tax deductible.

When considering a potential investment property, do not hesitate to contact BMT Tax Depreciation, who are happy to answer any questions regarding property depreciation. To estimate depreciation on your own, consult the BMT Tax Depreciation Calculator at www.bmtqs.com.au, where you can also download the free Smart Phone App!

Article Provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is a Director of BMT
Tax Depreciation.  Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia wide service.

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