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Why every PM should know the basics of a tax depreciation schedule

By Juliet Helmke
28 June 2022 | 1 minute read
Mike Mortlock reb

Knowing the facts about depreciation schedules could be a property manager’s silver bullet in growing a rent roll — especially around tax time.

According to Mike Mortlock, the managing director of MCG Quantity Surveyors, being equipped to advise and guide a landlord through the process of obtaining a depreciation schedule should be “a mandatory add-on for any property management business”.

Depreciation is the biggest non-cash property deduction that property investors can claim and the second-largest deduction overall, behind loan interest.

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It’s only available to investors, not owner-occupiers, and allows investors to recover the cost of wear and tear to a property and its assets over time by claiming in the two categories of capital works deductions and plant and equipment depreciation.

While costing an upfront fee, a depreciation schedule can save investors tens of thousands of dollars over the lifetime of the property, but you need a tax depreciation schedule to be able to take full advantage of the breaks.

According to Mr Mortlock, there’s very little extra legwork involved for a property manager to facilitate tax depreciation schedules once they understand the basics and establish a relationship with a quantity surveying outfit.

“All they really need to do is send us the address of their management or it might even be their prospective management, and we’ll write back and say, ‘based on this style of property, we would estimate between $6,000 and $7,000 worth of deductions in the first year of claims,’” he explained.

“Imagine being a property manager trying to onboard a management, if you’re competing with two other people who don’t offer the service but you can say, ‘I’ve spoken to my contact and we’ve seen that there’s X amount of potential reductions.’ You’re going to stand head and shoulders above the rest.

“Clever property managers are starting to understand the value.”

First, property managers should ensure they know the basics of tax depreciation schedules, because while it’s a game-changer for a lot of investors, it doesn’t apply to all properties. 

Mr Mortlock explained that there are generally three “triggers” that will give a property manager an indication that a home likely qualifies for depreciation tax breaks.

  1. The property is brand new

“This is probably the easiest one,” Mr Mortlock said. “The reason is because owners will be able to claim all of the carpets and the blinds and the kitchen appliances,” which are some of the biggest-ticket items in terms of depreciation. 

New legislation was introduced in 2017 that stated you could only claim depreciation of these assets if you put them in new or bought them new from that date onwards, so claiming depreciation on a new property is pretty much a no-brainer.

  1. The property was built after 16 September 1987

“If someone says to me, I’ve got a property built in 1988. I don’t need to ask any more questions to know that there’s going to be value in a depreciation schedule for them,” Mr Mortlock said.

If the property was built after this date, it means that you’ll be able to claim depreciation deductions on the value of the original building structure — things like the bricks or the concrete. 

“The worst case scenario here, the report is going to be paying for itself,” Mr Mortlock said.

  1. The property has been renovated or extended after 16 September 1987

According to Mr Mortlock, this one is probably the most overlooked, with many people assuming that if they’ve bought an old house, a depreciation schedule isn’t for them.

But if renovations have been carried out in the years since 1987, Mr Mortlock said a depreciation schedule would likely pay off because, for every $100,000 worth of building renovations, you’re able to claim $2,500 of deductions each year.

“Based on the improvements, you’ll be able to claim 2.5 per cent of the value of the new building works/renovations each year from the date of completion for 40 years, whether the works were done by the previous owner or yourself,” he explained.

“Therefore, you cannot simply say that a property built in the ’60s won’t be worthwhile. Regardless, people are given this advice daily.

“The trick now is knowing the rough value of the work being done. A quantity surveyor would need to estimate the value of these works if they were done by the previous owner, but anything over around $40,000 is likely to produce some worthwhile claims,” he said, noting that a new kitchen and bathroom can often easily put an investor into qualifying territory.

Why every PM should know the basics of a tax depreciation schedule
Mike Mortlock reb
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ABOUT THE AUTHOR


Juliet Helmke

Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.

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