When it comes to depreciation, the bathroom and laundry areas of a rental property contain some of the items most often missed by investors when claiming deductions.
While shower curtains and bathroom accessories such as toilet brushes, soap dispensers and hampers have relatively low depreciable values, it is items like these which can provide property investors with returns straight away.
Items contained in an investment property which have a depreciable value of less than $300 can be deducted as an immediate write-off in the first financial year after their acquisition. These plant and equipment assets experience wear and tear quickly so investors may also choose to update them frequently. This can become costly for an investor if they are not maximising their deductions and claiming them correctly.
Similarly, low-cost assets which have a value below $1,000 when first purchased and low-value assets which cost more than $1,000 in the year of acquisition, but remaining deductions after the first year’s claim are below $1,000, are eligible to be added to a low-value pool. Pooling is a method by which plant and equipment items will be depreciated an increased rate of 18.75% in the first year and at a rate of 37.5% from the second year onwards.
Items which have a relatively low value add up and while bathrooms and laundries are not the only rooms in a rental property where these low cost items are found, it is a place Quantity Surveyors frequently spot them when completing a detailed site inspection.
To examine this further, let’s take a look at some of the deductions a specialist Quantity Surveyor found for a rental property owner in the shared bathroom and laundry area of their property.
In the first five cumulative financial years, the owner of this investment property can claim $2,210 in deductions from their shared bathroom and laundry area alone.
Plant and equipment assets commonly found in a bathroom such as the shower curtains, the hamper and bathroom accessories such as the tooth brush and soap holders all had low depreciable values of $30, $40 and $80 respectively. As these items all were beneath the $300 threshold, the investor could claim an immediate write-off for these items in the first financial year claim.
The washing machine on the other hand was found to have a depreciable value of $1,250. As this value does not meet the criteria for an immediate write-off or the low-value pool in the first or second year, the item must be depreciated based on an individual rate and effective life enforced by the Australian Taxation Office (ATO). However, after the first two year claims have been made the item will fall below the $1,000 threshold and the investor can then claim the remaining years at the increased low-value pool rate of 37.5%. This means, that within five years, an investor can claim $1,055 in deductions for the washing machine alone.
Clothes dryers are another common asset found in the laundry of an investment property which these same rules may apply to, depending on the depreciable value of the particular dryer found on close inspection. This is a good reason to have an expert assess the items in your property for you. A specialist Quantity Surveyor will ensure the maximum deductions for each item found within an investment property are valued and calculated correctly using the depreciation rules available.
Capital works deductions for items found in the bathroom of an investment property pertain to the structural and fixed items. Examples include the bath, tiles, sink, taps, cupboards, the shower and towel rails. Depreciation for these items will be calculated at a rate of 2.5% over forty years so long as construction commenced within the legislated dates enforced by the ATO. In the first five years, the capital works deductions found in the bathroom alone for this investor cumulate to $1,005. The results will multiply as all of the rooms within the property will have depreciation deductions available.
To maximise depreciation benefits, ask for the advice of a specialist Quantity Surveyor and obtain a depreciation schedule. The difference it can make when completing your annual income tax return and the cash flow benefit are well worth making an enquiry.
–Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Chief Executive Officer of BMT Tax Depreciation. Bradley joined BMT in 1998 and as such he has substantial knowledge about property investment supported by expertise in property depreciation and the construction industry. Click here for more.