Market Update

Stock remains low - gain access to the huge number of off-market properties where opportunities do exist

Understanding Capital Improvements Deductions

tax deductionWhen you come across a statistic which claims that $17.5 billion is resting unclaimed in the coffers of the ATO, you begin to ask yourself, “What’s on the investors’ mind?” The fact that our average claim is close to a meagre $3,000 does not help the matters any either. And to think, we fool ourselves into thinking we are a country with scholarly grasp over investment routines. Funny!

Ignorance is not always bliss

Only about 40% of the investors have claimed their capital improvements deductions for the financial year 2012-13. We have been really tardy in at least two areas, “capital works” and “plants and equipment”.

Depreciation schedule

A lot of this can perhaps be put down to ignorance about the depreciation schedule; something which your Quantity Surveyor must get for you right at the start. Let us say that you have just made modifications to a load-bearing wall. Now, this makes you eligible to claim a capital works deduction. Or let us say you have just got rid of the old water heating system and got yourself a new one instead. So who is going to tell you to run for a plants and equipment deduction? Irrefutably, the Quantity Surveyors with their Depreciation Schedule are an enduring vision of the deduction game.

When can you claim capital improvements deduction?

For starters, you can claim repairs and maintenance right in the year you pay for them. With capital improvement deductions, the story is a little different. You can only make the claim after you have sold the property. Post selling, all the costs associated with extensions and improvements are augmented to the base cost of the property and calculations are accordingly made. In my career, it is the HVAC, outdoor area, plumbing and business improvements, towards which I have seen the maximum capital improvements money flow.

Repair and maintenance

Coming to repair and maintenance, these are some of the deductions, which to reiterate, can be claimed as soon as the expenses are made and deductions under these sections can be claimed in full. Repair aims to rectify damage while maintenance attempts to pre-empt the potential for damage.

Do you remember erring with one of these claims?