Ask Margaret: When should I get a depreciation schedule?

Hi Margaret

We have an investment property that needs some tidying up to maximise the rent – things such as replacing the carpets, renovating the kitchen and bathroom, painting and a carport.

Should we get a depreciation schedule before and after the renovations?

Your help is appreciated.

Regards

Debbe

Hi Debbe

I am so glad that you clarified this before you went ahead.  There is a significant benefit to be gained from what is known as ‘scrapping’, but all too often investors think of this after they have already thrown everything out, and this is too late.

First of all, your property has to be technically in the middle of being rented.  So, if it’s never been rented and you carry out these minor renovations before you make it available to rent, then you will not be able to make claims.  The property must be ‘income-producing’ in order to make claims.  So the best time is either while the tenant is in there, or in between tenancies.

If you do not know the value of the items which you will be removing from the property, start out by having a depreciation schedule prepared.  You are allowed to estimate the value of plant and equipment yourself (but not construction values), but in my experience it’s easier to have the schedule prepared, as this provides your construction values too.   Once you have had this done, go ahead and carry out the makeover.  Then, have the quantity surveyor come back to prepare an updated schedule.  It’s probably helpful if you can keep a list of anything you threw out to assist them.

You can then go ahead and ‘scrap’ any items which had a value before you disposed of them.  This means that their full, remaining value as at the time you threw them out carries an immediate deduction of 100% of the value for you, in that year!  For example, if you dispose of $5,000 worth of old items, you can claim an immediate tax deduction for the entire amount! For those on the 40% tax bracket, this is a tax break of $2,000, which isn’t to be sneezed at!

Good luck with your renovation!

Update

Last week a reader asked me to clarify whether I meant that you could avoid capital gains tax if you move out of your Principal Place of Residence for up to 6 years (as written), or if I meant 6 months!

You can move out of your PPOR for up to 6 years and still claim the PPOR exemption on that property, as long as you are not claiming the exemption on any other property.  You can rent it out during this time.  You must move back in (or sell it) not a day later than the 6 years are over.

The ‘6 month overlap rule’ is a different rule – it states that you can apply the PPOR exemption to two properties at the same time for an overlap period of not more than 6 months.  This allows you to move from your former home and into a new one and have 6 months to sell the old one without incurring CGT.  Again, the timing is strict; one day more than 6 months and the CGT applies form the date you moved out.

Margaret Lomas is a best-selling author and writes and hosts the popular Property Success With Margaret Lomas and heads up the panel onYour Money, Your Call, both on Sky News. She is the founder of Destiny.

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