Investors let savings go begging

Many commercial property investors are missing out on the benefits and savings that are available to them through tax depreciation, according to a recent Month in Review report by valuers Herron Todd White.

A report by Australian Property Investor magazine explains that a depreciation schedule is a report that outlines the depreciation allowances property investors are entitled to under the law. HTW says commercial properties such as warehouses, offices and retail developments are all eligible for depreciation.

“Under division 43 of the legislation, commercial properties built after July 20, 1982 attract a depreciation rate of 2.5 per cent on the original construction cost,” HTW says.

"Futhermore, any structural improvements completed after February 27, 1992 can also be depreciated at a rate of 2.5 per cent. This can be quite substantial considering the size and extent of some commercial properties.”

Plant and equipment (P&E) in a commercial building can also be depreciated, including floor coverings, air conditioning, exhaust fans, loose furniture and fittings etc.

HTW says under division 40, the P&E is depreciated at an accelerated rate – that is, greater than the flat rate provided by division 43.

“Many investors and accountants alike do not understand that under relevant legislation, P&E can be re-valued and given a new effective life from the date of settlement, meaning for each new owner the clock starts afresh,” says HTW.

“Furthermore, depreciation schedules can be backdated so investors can claim up to five previous years of depreciation in one year.”

HTW says 98 per cent of investment properties can be depreciated.

“This means that virtually every property investor can benefit from obtaining a depreciation schedule. Even though a building may not qualify it for a capital allowance because of its age, there will almost always be worthwhile deductions under P&E to deliver savings to the investor.”