Understanding what you can claim is the first step towards maximising your return. The Australian Taxation Office (ATO) has recognised that the value of capital works (Division 43) gradually reduces over time and these items can be written off as deductions. Capital works make up between 86-90% of construction costs, and should not be overlooked as claimable assets. Property investors are eligible to claim deductions on their property in each financial year for over 40 years, and this is at a rate of 2.5%. Even if your property is of greater age, there may be claimable assets available to you. In most cases buildings built later than 1987 may have undergone some form of renovations. This could mean that there are capital works deductions available to you.
The interior of your property is filled with Division 40 (plant and equipment) assets. These assets are common household items such as a microwave, a cooktop and blinds. They are identified as easily removable items, and like capital works assets, depreciate in value.
On 15 November 2017 changes were made to the Income Tax Assessment Act 1997 denying property investors from claiming income tax deduction for the decline in value of previously used plant and equipment assets within investment properties if you purchase your investment property after 7:30 pm on the 9th of May 2017. As a successive owner, this could inhibit you from claiming under this division. However, capital works assets could still be available.
If you would like to know more about the new legislation, and who’s affected, keep an eye out for our next post New Legislation | What are the Changes and Who Are Affected.