20 Jan 2020

What you need to know about tax depreciation in 2020

By Mike Mortlock

There’s an argument to say you don’t need to know anything at all about depreciation, much less specifically what applies in 2020. In fact, you could live a full and happy life, blissfully ignorant of depreciation and all its nuances.

However, like all good things in life tend to be, it’s a double-edged sword. You should have seen me in action at Christmas. The dizzying high of vintage cheddar and Hunter Valley Semillon on Christmas night, then the inevitable low of the bathroom scale weigh-in the next morning in a cloud of shame and regret.

Anyway, knowing just a little bit about tax depreciation can save you thousands of dollars per year in tax. In fact, in a recent study of our own data, we found that 6.7% of our clients waited so long to obtain a schedule, they missed some sizable deductions. Even allowing for the fact that you can back claim two financial years, the average unclaimed amount was $20,537. If that doesn’t get your attention, then try this bit of clickbait on for size; “If you extrapolate our findings across the nation’s total investor population, Aussie landlords are potentially short $2.886 billion on their claimable losses!”

So now that I’ve said you can have your ignorance and eat it too, but someone left the fridge unplugged and if you eat it, you’ll end up in emergency, what do you need to know?

Since you’re a good sport and you’ve made it this far, I’ll do you a favour and make it short. You need to know:

1. If you buy an investment property that matches ANY of the following, you’ll likely benefit from a tax depreciation schedule: a new property; a property built after 16 September 1987; and/or an old property that has had $40,000 or more worth of renovations completed.

2. Not much has changed in the depreciation world since 2017, but that change was major and it means that: you can only claim plant and equipment deductions on either new property, or plant assets that you add as new items yourself; occupying your investment property has some potential negatives that didn’t exist before so you should talk to your accountant and a quantity surveyor; many of the old cliche’d rules of thumb are now out of date, and you need the help of an expert.

I could probably go on for another two hundred pages, but I think you’ve suffered enough. Tax depreciation certainly isn’t sexy, but for property investors it’s a critical tool to help minimise your tax liabilities and maximise your after tax cashflow.

Just as the evening news likes to leave you with a heart-warming story of a squirrel learning to water-ski or some other equivalent, here’s something depreciation related that has changed for 2020. There’s a new plant and equipment item added to the current tax ruling and it’s the very last plant and equipment item. It’s a dog. Specifically:

Working dogs (including certified therapy dogs used by qualified therapists, detection dogs, guard dogs, performing dogs, police dogs and security dogs; but excluding assistance dogs (such as guide dogs, hearing dogs and service dogs), pet dogs, racing dogs, support dogs, and working dogs used in primary production).

Now you’ve almost certainly learnt something (almost entirely useless), so my work here is done. However, if you think I’m going to place a value on a dog’s life, much less tell you their effective life, you’ve got another thing coming. I just don’t have the heart, and some things are just too precious to put an effective life on. Thankfully, the good old Australian Tax Office has done it for us. It’s eight years.

Mike Mortlock is the Managing Director of MCG Quantity Surveyors who are a proud affiliate member of the Real Estate Buyers Agents Association of Australia (REBAA). MCG are Australia’s fastest growing quantity surveying firm (AFR Fast 100) and are specialists in tax depreciation for property investors and commercial property owners.