Renovations for Mountain Retreat Delivers Depreciation Rewards
Owning a holiday rental is a popular investment strategy for many property investors. Our clients purchased a second hand property at Tambourine Mountain in South East Queensland with the intention of renovating and leasing to short and long-term tenants.
The charming cottage on 2232m2 block, featured an Alpine design with grand towering roof line, plus kitchen, bathroom, three bedrooms and living areas spread out over three levels. The home had an original two-way featured fireplace which also acts as an exterior outdoor oven. Outside is a free standing a large double lock-up color bond garage with drive through access to the rear yard.
Upon inspection of the home, our Property Tax Analyst Kristy Bauer recorded in detail, the renovations and upgrades. The original home has been transformed into a modern, comfortable holiday escape blending old and new heritage features.
These renovations formed the basis of our evaluation to determine the depreciation allowances applicable for both capital works to the Building, and the new Plant & Equipment items purchased (Division 43 and 40). In addition, we also conducted a detailed inventory of new furniture purchased to fit-out the property as a holiday rental. Our clients kept detailed records of all expenditure, making our job so much easier.
Overall, our Property Tax Team calculated a total of $5,444 in depreciation deductions for the first full financial year, based on $100,963 in renovations and new purchases of assets. The entire cost of the renovations could be recouped through depreciation deductions over the next 40 years by our client.
Typical deductions included:
- Structural works – new kitchen, bathroom, fireplace, staircases, deck
- Air conditioning units
- Floating timber floor coverings
- Dishwasher
- Oven, exhaust and range hoods, stove
- Blinds and drapes
A separate Depreciation Schedule was prepared for the fit-out of furniture, as part of the depreciation allowances applicable for Plant & Equipment items (Division 40).
Based on a fit-out cost of $15,000, our Team calculated a total of $2,846 in depreciation deductions over the first full year. Depreciation on the fit-out items would continue for the life of the assets. Items listed in the Furniture Depreciation Schedule included:
- Audio visual – surround sound systems
- Barbeque, free standing
- Furniture, free standing
- Microwave ovens
- Refrigerator
- Washing machine
- Television receivers
- Smaller incidental items to the value of $300
Our clients are extremely happy their property investment will continue to deliver a favourable return for them through depreciation allowances. Now they can offset rental income and save on their taxes too.
If you’re looking at purchasing an older property and renovating as part of your investment strategy, contact our Property Tax team to learn what depreciation allowances are applicable.
