Investors Ask: Renovation depreciation

By Tracey Lunniss

Q. I have recently bought a newly renovated sixth floor unit as a rental property. I do not have records of the extent of the renovations or of the costs as they were done by the past owners. Can I still claim depreciation on these improvements? How would this differ had the property not been renovated?

A. The claim ability and evaluation of renovations is a common question when investors consider Tax Depreciation and the following answer will only lead to reinforce my previous comments and articles in relation to the utilisation of a suitably qualified and experienced Quantity Surveyor.

The simple answer is yes, renovations are depreciable even if they were not undertaken by yourself, with one caveat, that they were completed after 1985.

When you engage a suitably qualified quantity surveyor, they will undertake an inspection of the property as part of the process of preparing your Tax Depreciation Schedule, during this inspection they will ascertain the extent of the renovations in conjunction with estimating when they were completed.

The quantity surveyor will then prepare an estimate of what it would have cost to undertake these works at that time, incorporating these costs within your Tax Depreciation Schedule. 

As with any ordinary Tax Depreciation Schedule the renovations are split into those of a capital nature and Plant and Articles with the relevant percentages and durations applied thereto.

Had there been no renovations undertaken then you would only have Depreciation as it was applicable to the existing Building and associated Plant and Articles.

However, in this instance, you can undertake the renovations yourself, whereby not only will you then be able to depreciate the costs associated therewith, but you may also have some scrapping values that can be depreciated immediately, an old kitchen or bathroom may well have some residual value.

Note that failing to see what has been removed negates the Quantity Surveyors ability to apply any scrapping values.

Tracey Lunniss, Associate Director, Chartered Quantity Surveyor

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