Why Property Records Matter More Than Many Investors Realise

A property can look simple on paper: purchase price, rental income, expenses and current value. But those numbers rarely tell the full story.

The history behind a property can be just as important.

Renovations, replacements and upgrades completed over the years can influence future spending decisions and may also be relevant when assessing depreciation. Without clear records, investors can be left trying to reconstruct that history long after the work was completed.

Past work can affect future spending and depreciation

Knowing what has already been replaced or upgraded can help investors better understand what expenditure may lie ahead.

If a roof was replaced recently, for example, another major expense may be further away. If the hot-water system, kitchen or air-conditioning is still original, further expenditure may arise sooner.

The same history can matter for depreciation.

A renovated kitchen may contain newer assets and valuable capital works. Knowing when the renovation occurred, what was installed and what documentation is available can help establish the appropriate depreciation treatment.

Invoices, building plans and renovation records provide more than a history of spending. They can help establish what work was completed, when it occurred and how different components of the property should be assessed.

Previous owners can leave behind more than renovations

Not all qualifying work will have been completed by the current owner.

A previous owner may have renovated a bathroom, added an extension, replaced flooring or upgraded major services before selling the property. Depending on the property and individual circumstances, some of this work can still be relevant when assessing the property’s depreciation position.

This is why the age of a building does not always tell the full story.

A property that appears largely original may have undergone upgrades that are difficult to identify from appearance alone. Where records are incomplete, other evidence may be needed to build a clearer picture of the property.

Documentation helps separate different parts of the property

Depreciation is a non-cash deduction, but not every part of a property is treated in the same way.

Capital works relates to a building’s structure and fixed assets such as walls and built-in cabinetry. Plant and equipment deductions relate to easily removable or mechanical assets, such as flooring and air-conditioning units.

A renovation can involve both. The treatment can depend on what was completed, when it occurred and what assets were installed when assessing potential deductions.

Ownership can matter too. Simply finding an asset at a property does not necessarily establish who owns it, who paid for it or who may be entitled to claim depreciation. Invoices, lease documents, asset records and renovation details can help establish that position where relevant.

Missing records do not always end the assessment

Complete property records are not always available, particularly where a property has changed hands several times or renovations were completed many years ago.

That does not necessarily mean the property depreciation history cannot be assessed.

Where documentation is not available, a specialist quantity surveyor such as BMT Tax Depreciation can estimate historical construction costs for depreciation purposes. A physical site inspection can help identify installed assets, renovations and other property features and reconcile them with the information available.

A BMT Tax Depreciation Schedule brings together relevant property information and the findings of the assessment to calculate potential depreciation deductions. Investors can then provide the schedule to their accountant to support the preparation of their tax return. To understand the depreciation available for your investment property and the information that may support a property-specific assessment, request a quote.

Disclaimer: This information is general in nature and does not consider your personal circumstances. Tax outcomes depend on individual situations and current legislation. You should seek independent advice from your accountant before making decisions based on this information.