3 common mistakes when doing “DIY” depreciation

The top three mistakes that Mr Beer sees investors making at tax time are:

Ignoring claimable items

According to Mr Beer, one of the most common mistakes being made by DIY depreciation claims are claimable items simply not being claimed.

“With more than 6,000 depreciable plant and equipment assets listed by the Australian Taxation Office (ATO), it can be easy for investors to miss common household items that hold deductible value such as smoke alarms, garbage bins and kitchen appliances,” said Mr Beer.

To ensure claimable items are not missed, quantity surveyors can create a depreciation schedule, a report that outlines claimable items on a property’s building structure and fixtures and fittings. These include, according to the ATO, capital works allowance for structural elements like walls, floors and ceilings, and plant and equipment deductions such as hot water systems, blinds and stoves.

Categorising items incorrectly

Following ignoring claimable items, another common mistake is when investors put assets in the incorrect category.

“For example, some investors mistakenly assess carpet as a permanently fixed asset rather than a removable asset. If an investor claims carpet that costs $3,650 using a rate of 2.5 per cent (provided for structural deductions and fixed items), they would be claiming $91, however, if depreciated at the correct rate of 20 per cent they could claim $730 in the first financial year,” explained Mr Beer.

“Also, some self-assessors may realise that they could have claimed much more in previous years but choose not to do so as they don’t believe the rules allow it.”

Legislation changes

Mr Beer said proposed legislation changes to plant and equipment deductions could also impact on investors’ claims.

“While plant and equipment assets found in properties purchased before 9 May 2017 will be grandfathered and deducted as normal, investors should be aware that under proposed legislation, secondhand properties purchased after this date will only allow their owners to claim deductions for newly installed assets they add to the property themselves and capital works deductions,” he explained.

DIY depreciators who feel unsure of doing tax depreciations themselves with the proposed changes to plant and equipment deductions should ask a quantity surveyor for help.

“A quantity surveyor can produce a tax depreciation schedule which will help ensure that a property investor maximises tax savings from their portfolio this year and the cost of the report itself is tax deductible,” Mr Beer said.