The Connection of Property Renovation and Depreciation: 5 Things You Need to Know

The Connection of Property Renovation and Depreciation: 5 Things You Need to Know

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Properties get old as time passes by. The items inside those buildings deteriorate. All of their values depreciate. Property investors and owners do not just benefit through putting in money for the mere gain of their investment but also because of The Australian Taxation Office’s system, they also obtain the advantage of tax deductions from depreciation.

There are many steps that you, as an investor, need to know and do to claim those benefits. You need a tax depreciation schedule made by a quantity surveyor. It is used through the years to claim your property’s taxation benefits. And if in the course of time you will be planning to renovate the property, there are things you must know and do because changes you make affect depreciation too.

Below are 5 important things you need to understand about the connection of the renovations you do or you’ll be doing with the depreciation of your property:

[1] RENOVATION ADDS VALUE

Whatever kind of renovation you do -- big or small, major or minor, it is profitable. You gain something from every single modification you allow your property to have. Be it a new toilet, a bathroom walling, a heightened dining ceiling, a new room, you can benefit because renovation does affect depreciation.

Adding more costs is what renovation does to your property/building. Money is spent, thus, the value does increase. When fixtures and fittings located within the building increased in quantity, you claim more depreciation benefits because you have more things that have worth.

Property renovation is actually one wise way to raise your property’s value, maximize its usefulness and expand your benefits. Your tax depreciation entitlements will also be favorably influenced. You can claim depreciation on significant aspects of your property.

[2] BE SMART ABOUT YOUR INSTALLATION PLANS

Before doing any renovations, be initially informed about the pros and the cons of doing so. Also, know what benefits you can claim from depreciation, and do not simply know but grasp every important information, so you won’t miss any special advantage from your property investment!

Carefully and cleverly plan about the add-ons and alterations that you’ll make. Every asset has an individual effective life set by the ATO, and it’s where the computed depreciable value of each is based on. In actuality, all additions can draw a considerable difference to your depreciation entitlements.

Time is important in the system of depreciation, so before renovating, determine and consider the depre­ci­ation deduc­tions that will become attainable as soon as fresh elements have been decided and stationed.

[3] OLD PROPERTIES ARE VALUABLE

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There is an existing misconception among investors regarding old and new properties. Some believe that only new properties can be beneficial when it comes to depreciation and that old properties cannot gain from it. It’s not true because you can claim for both! This is also one of the reasons why many investors unknowingly and/or mistakenly let their depreciation benefits pass them by.

The wrong idea is a result of the restrictions that the ATO set on the qualification for capital works deductions, informing residential property owners that those constructed before July 18, 1985, are not allowed to claim capital works subtractions.

That’s the case for that but for plant and equipment, no age border is imposed because the depreciable amount lies on the condition and characteristics of the items. That just means there are still taxation perks you are permitted to get from older properties.  

[4] A DEPRECIATION SCHEDULE PRIOR TO RENOVATION

Renovation equates to higher value and higher depreciation deductions. Before you renovate, ask a quantity surveyor first because you need to do some scrapping.

Some things in your property have depreciation applicability; some value still remains. Any meaningful rebates which you might not know about will be detected by your quantity surveyor.

Because it will not be the same as it will be after the renovation, completion of both site inspection and tax depreciation schedule are required before anything is removed and before any reconstruction work commences.

If you’ve already worked with a quantity surveyor before, they can look at the current depreciation schedule report that you have and look at what value is left in the items you will throw away and then make discussions with you and your accountant.

[5] AN UPDATED DEPRECIATION SCHEDULE

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After the refurbishment, of course, new things and details are now seen in your building. A back-up to your depreciation benefits is what your depreciation schedule works for. It’s for your existing and old assets. Your additionals are not included there, and that’s why you need to ask for another depreciation schedule.

This one is a second (2nd) report and not simply edited on itself, and it must be prepared and must list all assets taken off from the primary sched­ule and also the continuing value that can be claimed.

If you don’t do this, then your property’s new components will not benefit from depreciation, and you’ll keep on using an outdated one.

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RENOVATE. DEPRECIATE.

Renovations affect depreciation, thus, also has an impact on what you can claim from your property investment. Be well-informed about what to claim and how to claim them. Make proper use of your advantages and maximize them!

AUTHOR BIO:

Nicole Ann Pore is a writer, an events host, and a voice-over artist. Travel, health, shopping, lifestyle, and business are among the many subjects she writes about. Through quality and well-researched writing, she informs and even entertains readers about things that matter. She is also interested in film critiquing and filmmaking. Giving all the glory to God, Nicole graduated Cum Laude from De La Salle University-Manila, the Philippines with a Bachelor’s Degree in Communication Arts.

The Connection of Property Renovation and Depreciation: 5 Things You Need to Know

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