If you own a rental property, you may know that you can claim a certain amount of money for depreciation against your tax liability. In addition to the value of the property itself, you can also claim for assets that are defined as "non-structural." Yet the ATO also states that you need to distinguish between the value of new and second-hand assets and each of these must be accounted for in a different way. What should you know about the recent changes?
Segregating New from Used
In their infinite wisdom, the tax authorities have decided to segregate second-hand Division 40 assets from new ones. Now, you can no longer claim everything as one deduction figure annually going forward. For the second-hand items, you will have to wait until you sell the investment property and can then claim these particular deductions as an accumulated total instead. This will help to reduce the amount of CGT tax that you will otherwise have to pay.
Division 40 assets include a variety of different products such as desks, curtains, carpets, air conditioning units, hot water systems, computers and so on. If you purchased these items when you acquired the property in the first place, then they are deemed to be second-hand. If you've bought anything since you became the owner, then this is treated separately, and you can claim depreciation immediately in that case.
Drawing up the Schedule
You will still need to get a tax depreciation schedule which can only be drawn up by a qualified quantity surveyor. They will, in turn, separate all of the Division 40 assets from the capital components down to a very granular detail. If you do happen to buy any new assets going forward, then these can be added to the depreciation schedule at any time.
The big difference is that the annual depreciation amounts for each second-hand Division 40 asset will be forecast. When you sell the property, you can refer to the document produced for each of the preceding years and accumulate the value of your second-hand assets. This should reduce the profit value of the sale, affecting the amount of CGT that you will pay.
If you have any questions about any of your assets and wonder whether they should be treated as second-hand or not, then you should talk with an experienced accountant or property depreciation professional.