The average house that achieved over $3,000 worth of depreciation deductions in 59 days

House Deductions

At MCG we occasionally see some astonishing tax depreciation deductions, like the penthouse in Cremorne Point which returned over $170,000 in its first full year of claim, but even an average house can return amazing, yet every-day deductions.

Consider a property in Goulburn built in May 2012 and purchased brand new for $315,000 (the above picture is for example purposes only). It is a standard three bedroom property with an ensuite, small undercover patio and a single garage.

The property has some standard plant and equipment items such as;

  • Bathroom Accessories
  • Automatic Garage Door
  • Blinds
  • Carpet
  • Cooktop
  • Dishwasher
  • Door Closer
  • Heat Lights/Exhaust Fans
  • Hot Water System
  • Light Shades
  • Ovens
  • Pump & Filter (For Rainwater Tank)
  • Range hood
  • Smoke Alarms

These types of assets are found in most properties, and the standard of finish was typical of an average new three bedroom home. In the first FULL year of claim (2013/2014) we found around $9,500 worth of deductions. This was a great result for a new house purchased for only $315,000.

As the property was bought in May, the first financial year of claim represented only 59 days from settlement to the 30th of June 2012.  We often see investors holding off on having a depreciation schedule done when they purchase close to the end of a financial year  because they don’t believe much can be achieved in a month or so.

If we consider 59 days as a percentage of a year (59 divided by 365), we could expect around 16% of say the $9,500 we achieved in the first full year. That would get us around $1,500 for those 59 days. Even this amount justifies having a schedule done right away, but the actual result was even better. In the 59 days to 30th June 2012 we identified $3,094 worth of tax depreciation deductions.

How is it possible that so much can be depreciated within the first 59 days?

There are two factors at play here and we will take a quick look at them individually.

The first is a 100% write-off or immediate deductions.

Tax legislation states that any asset group with an opening value of $300 or less can be written off at 100% in the year of acquisition. This legislation is particularly effective for properties purchased with only a few days left in the first full financial year. For example, a property that settled two days before the 30th of June with a single ceiling fan worth $220 could claim that $220 as part of their end of year tax return right away.

Looking at our case study, there were three items which qualified for an immediate 100% deduction. They were as follows;

  • Automatic Garage Door Controls
  • Bathroom Accessories
  • Door Closers

These assets alone contributed $611 of deductions. . The interesting thing to note is that even if it was only 2 days before the end of the financial year, it still would have been $611.

The second factor is low cost pooling.

Tax legislation states that any assets with an individual opening value under $1,000 are able to be depreciated at 18.75% in the year of acquisition and 37.5% each year thereafter. The great thing with pooling is that it doesn’t matter how many days there are in the first financial year. The asset returns 18.75% of its value in the first year regardless.

Within the case study property, the following assets qualified for the 18.75% pooling rate;

  • Automatic Garage Door Motors
  • Blinds
  • Heat Lights/Exhaust Fans
  • Light Shades
  • Pumps
  • Range hoods
  • Smoke Alarms
  • Water Filers

The total depreciation these assets contributed in the 59 days was $1,280.

As you can see, a lot can be achieved in a short time and this excludes assets that didn’t qualify for the immediate 100% deduction or the pooling schedule within the first year. Those assets were things like the hot water system, oven etc.

Amazingly, even if this property only had 1 day of claim for the 2012/2013 financial year, we still would have achieved just over $1,900 for the client! Who wouldn’t be impressed with $1,900 worth of deductions for one day of claim on an average three bedroom property?.

These components of tax legislation mean that property investors do not have to wait until the following financial year to have their depreciation calculated if they buy a property in April, May or June. To most property investors, $1,900 or $3,094 is certainly worth claiming straight away, rather than 12 months down the track. Knowledge is power when it comes to your tax depreciation entitlements and we look forward to keeping you up to speed on how best to maximise your claims.