Client Overview

Sophia, a property investor, purchased a house in Brisbane, Australia, built in 2020 for $700,000. In 2020, Sophia decided to rent out the property to generate passive income. She was unware of the potential tax savings available through depreciation claims.

The Challenge

Since Sophia’s property was new, she assumed she wouldn’t be able to claim significant tax deductions beyond typical expenses like interest on her mortgage. Her accountant advised her to explore depreciation deductions as an additional way to reduce her taxable income.

The Solution

Sophia engaged SYC Tax Depreciation to prepare a tax depreciation schedule for the property. The quantity surveyor conducted a comprehensive assessment of the house and identified two primary categories for depreciation deductions:

Capital Works Deductions (Division 43)

• As the property was built after 1987, Sophia could claim depreciation on structural elements such as walls, floors, and roofs.

• The quantity surveyor calculated these deductions at 2.5% annually for 40 years from the property’s construction date.

Plant and Equipment Deductions (Division 40)

• Items like kitchen appliances, carpets, air conditioning units, and blinds were identified as depreciable assets.

• The quantity surveyor calculated depreciation based on the effective life of each item.

Results

In her first year of renting out the property, Sophia claimed:

• $12,000 in capital works deductions, thanks to the house’s recent construction.

• $7,500 in plant and equipment deductions, covering the value of modern fixtures and fittings.

Total first year deductions $19,500

Over five - year period, Sophia is projected to save approximately $85,000 in tax by claiming depreciation. These savings have significantly improved her property’s cash flow, making it a more profitable investment.

Key Benefits for New Property Investors

1. Eligibility for High Deductions: New properties like Sophia’s often yield substantial deductions due to updated construction and modern assets.

2. Reduced Tax Burden: Depreciation allowed Sophia to offset rental income and lower her taxable income.

3. Long-Term Financial Strategy: The depreciation schedule provided a 40-year roadmap for tax savings, ensuring sustained benefits over time.

4. ATO Compliance: By using a professional quantity surveyor, Sophia ensured her claims were accurate and aligned with Australian tax laws.

Conclusion

Sophia’s case illustrates the importance of leveraging a tax depreciation schedule, especially for newly built properties. Even years after purchase, depreciation remains a powerful tool for property investors to maximize returns and improve cash flow. Engaging a qualified professional to prepare a detailed schedule is essential to unlocking these benefits.