Taxing Rental Property Questions

21 Aug 2011 |

In a recent article I advised of the importance of obtaining a depreciation report from a quantity surveyor. The cost of these reports can vary greatly so you should shop around. You should also ensure the person preparing the report is suitably qualified and a member of a relevant professional body.

Q. Instead of engaging a quantity surveyor, can we use the property purchase price as the “Original Cost” then calculate 2.5 per cent depreciation based on that figure? What happens if the property was purchased 5 years ago and I have done my tax returns every year without claiming any depreciation on the property?

A. You cannot use your purchase cost to calculate the construction cost to claim the 2.5 per cent annual deduction. The original cost of the property is made up of the value of the land, the value of the building and the fixtures and fitting in the property. The construction cost is an historical cost and, unless you can get this from the original owner or council records, you need to engage the services of a quantity surveyor.

Under tax law most individuals can only amend two years of tax returns. Where a taxpayer has more complex tax issues, such as a property investor, they can amend up to four years of tax returns. The four year time period is based on the assessment date for the year to be amended. For example if your 2006 tax return was assessed on 31 July 2006 you would have until 31 July 2010 to request an amendment to include the depreciation claim missed.

Q. If I sell my investment unit do I have to pay back all depreciation claimed previously?

A. There are two types of depreciation. The first is the annual deduction for the reduction in value of fixtures and fittings, such as floor coverings and a stove, and the second in the 2.5 per cent building write off. When a property is sold in most cases the fittings are sold at written down value.

Where building costs have been claimed, and the property was purchased after 13 May 1997, the cost of the property must be decreased by the total claimed. For example if a property was purchase in 2001, which the owners had claimed $10,000 in building write off, the cost used to calculate any capital gain would be decreased by $10,000.

Q. For my investment property what are the rules that differentiate maintenance costs and building costs. For instance is repainting a property “maintenance” or “building”? What is replacing an existing but unsalvageable paling fence?

A. For a repair to be tax deductible it cannot improve the asset from the state it was in when you purchased it. If the fence was in a bad state of repair when you purchased the property replacing it would not be a repair. If the fence was in good condition when you purchased the property, and has deteriorated over the time you owned, you could claim the cost of replacing it.

Q. We rented our principal residence in Melbourne about 2 years ago while we live and work in Singapore. The tenants are moving out and we are considering renovating with a view to moving back in. Would such costs be deductable?

A. By renovating it sounds that you are doing more than repairing damage done by the tenants so it would not be tax deductible. Also if you cease renting the property you would not be able to claim any repairs as there would be no rental income to offset the costs.




1 Comment

  • John

    20 Aug 2012

    If I rent out my PPOR for 2 years then move back in, can I claim depreciation for those couple of years? If so, what happens if I decide to sell in the future ... do I have to pay back the depreciation given the sale on the PPOR will be CGT free (as I have moved back within 6 years)?

Leave a Comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Latest News

Ramen Media Support - 30 Jul 2021

Scott Morrison's First Budget Very Illiberal

Max Newnham - 30 Jul 2021

Sample Article

Max Newnham - 30 Jul 2021

Picking the right business structure

Max Newnham - 30 Jul 2021

Not All Share Services Are Created Equal

Max Newnham - 30 Jul 2021

How The Self Employed Are Disadvantaged By The Income Test

Max Newnham - 30 Jul 2021


Max Newnham - 30 Jul 2021

Risky business: companies and trusts

Max Newnham - 30 Jul 2021

Changing Trustees of an SMSF

Max Newnham - 30 Jul 2021

Are SMSFs Losing Their Appeal?

Max Newnham - 30 Jul 2021