Investors need to be aware of tax breaks on renovations
SPENDING on home renovations in the last financial year reached $6.31 billion, an increase of $10 million over the previous financial year and almost $1 billion up on the 2008/2009 figures.The data was released by the Australian Bureau of Statistics, but according to taxation depreciation specialist DEPPRO, Brisbane investors are failing to realise the depreciation potential of their renovations. DEPPRO managing director Paul Bennion said that given the extensive size of the home renovation market, investors generally were falling well short of their taxation depreciation entitlements.
"While it is difficult to quantify an exact figure, my estimate is that it would run into many millions of dollars," he said.
"A considerable number of investors fail to appreciate that home renovations on investment properties provide a platform for considerable taxation recompense, based on our experience." Mr Bennion said kitchens and bathrooms were the two most popular renovation areas, accounting for about 60 per cent of the total renovation budget.
"Many investors do not realise a range of items that are disposed of have a residual value.
"An example is that if a 20 year-old kitchen valued at $10,000 is disposed of, 20 years of depreciation still remains that can be claimed.
"This equates to $5000 on the assumption it is written off at 100 per cent of its value. Bathrooms also have a depreciation life span of 40 years.
"Some homeowners are also under the illusion that old properties have no depreciation value.
This is far from the truth.
"Property tax depreciation, if applied conectly, has the potential to find several thousand additional dollars in tax returns for home owners."he said.
Standard home renovations usually ranged between $20,000 and $50,000.
"The investor’s tax deduction entitlements can relate to both plant and capital works allowance in addition to the residual write off of the disposed item." Mr Bennion suggests the following considerations to help maximise tax depreciation entitlements for renovations: Renovate at least 12 months after purchasing to ensure a full tax depreciation entitlement. If renovations are undertaken soon after purchase, the tax office deems the renovation as having no value.
Spend money on items that have a high rate of depreciation such as white goods, carpets and window coverings.
Retain all invoices and do not claim personal labour costs.
Ensure the full life span of all depreciation items is claimed
"A considerable number of investors fail to appreciate that home renovations on investment properties provide a platform for considerable taxation recompense, based on our experience." Mr Bennion said kitchens and bathrooms were the two most popular renovation areas, accounting for about 60 per cent of the total renovation budget.
"Many investors do not realise a range of items that are disposed of have a residual value.
"An example is that if a 20 year-old kitchen valued at $10,000 is disposed of, 20 years of depreciation still remains that can be claimed.
"This equates to $5000 on the assumption it is written off at 100 per cent of its value. Bathrooms also have a depreciation life span of 40 years.
"Some homeowners are also under the illusion that old properties have no depreciation value.
This is far from the truth.
"Property tax depreciation, if applied conectly, has the potential to find several thousand additional dollars in tax returns for home owners."he said.
Standard home renovations usually ranged between $20,000 and $50,000.
"The investor’s tax deduction entitlements can relate to both plant and capital works allowance in addition to the residual write off of the disposed item." Mr Bennion suggests the following considerations to help maximise tax depreciation entitlements for renovations: Renovate at least 12 months after purchasing to ensure a full tax depreciation entitlement. If renovations are undertaken soon after purchase, the tax office deems the renovation as having no value.
Spend money on items that have a high rate of depreciation such as white goods, carpets and window coverings.
Retain all invoices and do not claim personal labour costs.
Ensure the full life span of all depreciation items is claimed
