A surging property market is encouraging more property owners throughout Australia to undertake home renovations.
Blogger: Paul Bennion, managing director, DEPPRO tax depreciation specialists
This is underlined by the latest ABS figures for the first three months of 2014 which show expenditure on renovations jumped substantially over the March quarter.
Spending On Home Renovations
January 2014 $437.1 million
February 2014 $533.2 million
March 2014 $586.2 million
During the first three months of 2014, expenditure on home renovation has surged by nearly $150 million to $586.2 million (March) compared to $437.1 million for January 2014.
A large proportion of the jump in home renovation expenditure can be attributed to property owners deciding to renovate because of rising equity in their homes.
However, investors are also taking advantage of the rising property market to buy homes for renovation purposes.
Astute investors are targeting homes in prime locations where they can significantly boost rental returns through renovations.
However, we are finding that many investors do not understand that they can qualify for significant tax benefits when undertaking a home renovation on their investment property.
DEPPRO is finding that common refurbishments to these investment properties include renovations to kitchens and bathrooms, which account for around 60% of the budget, with the remaining 40% being spent on lounge, family and bedrooms which would include floor coverings and repainting.
Many investors throw out many items without understanding that they may claim tax benefits on these materials at 100% of its written down value in the year of disposal.
A typical amount spent on a home renovation ranges from $20,000 to $50,000 for a basic refurbishment and the investor can qualify for both plant and capital works allowance as a tax deduction and the residual write off of the disposed item.
However, to qualify for these tax benefits, the investors have to undertake a depreciation schedule for the property as near as to the date of purchase as possible.
A typical mistake is for investors to undertake the renovation shortly after they bought the property without first undertaking a tax depreciation schedule.
That means that many of the items they throw out such as old carpets cannot be claimed for tax depreciation purposes because they have not been recorded in a tax depreciation schedule which can be used for tax purposes as an effective snapshot of the property after it is first purchased.
About the Blogger
Paul Bennion is the managing director of DEPPRO tax depreciation specialists.
DEPPRO Pty Ltd is Australia’s leading property depreciation company, specialising solely in the preparation of tax depreciation reports for residential, commercial, industrial and leisure investment properties.