Australians with investment properties have been warned about three errors that could see them thousands of dollars out of pocket.
Investment properties often have goods or services installed that can be claimed as an income-producing deduction in tax returns.
But the rules can get complicated, so many don't end up maximising what they're eligible for.
"Property investors can claim sizable tax deductions for the natural wear and tear that occurs to a building and its fixtures and fittings over time," stated BMT Tax Depreciation, a company that specialises in the matter.
"These deductions are known as property depreciation."
Quantity surveyors are best qualified to properly estimate building and renovation costs for depreciation, according to BMT.
"Yet many people fail to engage one and miss out on claiming valuable dollars back at tax time."
BMT chief executive Bradley Beer, who is a quantity surveyor himself, cautioned taxpayers about the three most common mistakes seen in tax returns. Here they are:
Tax mistake #1: Missed deductions
Many investment property owners simply don't know they can claim a depreciation deduction on certain items.
Beer said many opportunities are missed, especially on "substantial renovations" that were performed by previous owners.
"Some examples of substantial renovations include replacing foundations of the building, walls, floors, the roof or staircases," he said.
"These renovations can hold tens of thousands of dollars in deductions for the new owner."
Tax mistake #2: Wrong category
There are two categories of depreciation deductions: capital works, and plant and equipment.
The two categories have different rates of depreciation, and could make thousands of dollars difference in your tax return.
"It’s often not immediately clear which category an item belongs to, and in some cases an asset can be split between both," Beer said.
Capital works, according to Beer, are for wear and tear on items that are permanently fixed to the property, like doors and windows. Plant and equipment are things that can be easily removed from the premises.
"Many investors mistake floating timber flooring as permanently fixed to the building and therefore a capital works deduction when it’s actually removable, making it a plant and equipment deduction," said Beer.
"This could mean the difference between $250 and over $1,300 in first year deductions."
A ducted air conditioning system is another tricky example. The air con engine is considered plant and equipment, while the ducting is classified as capital works.
"Claiming an entire ducted air conditioning unit under [capital works] would result in substantially higher but incorrect first year deductions, which would come under ATO scrutiny," Beer said.
Tax mistake #3: Older properties
Many taxpayers mistakenly believe depreciation can only be claimed on new houses.
Certainly, new houses have the highest potential for deductions, but capital works can be claimed regardless of age of building.
Beer said for the 2020 financial year, his company found an average of $8,300 of depreciation claims for each of its clients' properties.
"Second-hand property owners can still claim depreciation on all qualifying capital works deductions that, on average, make up 85-90 per cent of the total claim," he said.
"They can also claim all new plant and equipment assets they purchase for the property."