Back claiming your tax depreciation deductions

Can I back-claim for depreciation on my rental property?

Yes you can back-claim depreciation of your investment property for previous years…

If you have held your investment property for a number of years but didn’t realise you could be claiming depreciation on it, you have effectively over-paid your taxes and you are entitled to claim back the over-payment from the ATO.

How many years you can back-claim will depend on your previous tax lodgements, as well as your personal circumstances.  Your accountant will be able to provide more detailed advice for your own situation, however some general guidelines are below.

How many years of depreciation can I back-claim?

The ATO states the following when it comes to amending tax returns for previous years:

“Individuals and sole traders generally have 2 years to submit an amendment to their tax return. This time starts from the day after your notice of assessment is sent to you.

For example, if the date on your individual notice of assessment is 1 November 2023, your amendment period starts on 2 November 2023. That means you have until 1 November 2025 to request an amendment to your tax return.

Time limits on business and super amendments. The law sets time limits for amending your tax assessment, which is generally:

  • two years for small businesses
  • two years for medium businesses for income years starting on or after 1 July 2021
  • four years for other taxpayers.

This time period starts from the day after we give you the notice of assessment for the income year in question. This is generally taken to be the date on the notice or, if we don’t issue a notice, the date the relevant return was lodged.

You can submit more than one amendment request within an amendment period.”

This means that generally individuals are able to amend up to 2 years previous tax returns.

It is also our understanding that if you were behind on lodging your taxes last year and lodged a number of years at the same time, all of those years will be eligible for amendment as they were lodged within the last 2 years.

It is also our understanding that if you are the beneficiary of a trust, or the potential beneficiary of a trust, then the 4 year limit for amendments will apply.

All other entities, such as trusts, companies and self-managed super funds can amend tax returns lodged within the last 4 years as a standard.

How do I back-claim for previous years depreciation?

Back-claiming for previous years requires that you submit a request for amendment to the ATO. The ATO does not charge a fee if you request an amendment and you don’t have to send in another tax return unless they ask you to.

You can request an amendment in a number of ways.  We always recommend you consult with your accountant – they are the experts and can do this process with the most experience and least amount of effort.  If you manage your own tax affairs however you can find specific details here on the relevant ATO website page.

Below we take a further look at two of our client’s tax depreciation back-claims for a residential and commercial investment property:

Case Study – Residential Investment Property

Christine purchased a 2 year old investment property in 2020.  Christine was not aware at the time that she could benefit from claiming depreciation.

Christine had Capital Claims Tax Depreciation prepare a depreciation schedule for her in May 2023.

A Capital Claims Tax Depreciation schedule begins from the time the investment property is available as an investment property, which in Christine’s case was as soon as she purchased it in March 2020.

Christine holds her investment property as an individual and would like to back-claim depreciation in previous years that she missed out.

Christine’s total depreciation deductions for each financial year were as follows:

Can I back-claim for depreciation on my rental property? » back-claim

Based on the above example, Christine is able to request amendments for her 2021 and 2022 tax returns, as well as claim deductions in her 2023 tax return and subsequent years.

Total deductions claimable across the 3 years equals $25,070.  Unfortunately, the $5,013 that would have been claimable for the 2020 financial year have been lost.

On the upside, Capital Claims Tax Depreciation held off immediate write-off and low-cost and low-value pooling provisions to minimise the first-year losses and improve those deductions claimable for Christine.

Case Study – Commercial Investment Property

Malcolm purchased a commercial office building in 2018.  Malcolm was not aware at the time that he could benefit from claiming depreciation.

Malcolm had Capital Claims Tax Depreciation prepare a depreciation schedule for him in June 2023.

A Capital Claims Tax Depreciation Schedule begins from the commercial property’s settlement date, which in Malcolm’s case was February 2018.

Malcolm holds his commercial property in a trust and would like to back-claim depreciation in previous years that he missed out on.

Malcolm’s total depreciation deductions for each financial year were as follows:

Can I back-claim for depreciation on my rental property? » back-claim

Malcolm’s trust is able to request amendments for his 2019, 2020, 2021, and 2022 tax returns, as well as claim deductions in his 2023 tax return and subsequent years.

Total deductions claimable across the 5 years equals $195,167.  Unfortunately, the $28,555 that would have been claimable for the 2018 financial year has been lost.

On the upside, Capital Claims Tax Depreciation held off immediate write-off and low-cost and low-value pooling provisions to minimise the first-year losses and improve those claimable for Malcolm.

“The back-claims and future claims will help our clients with cash flow especially at this critical economic time. Depreciation can total thousands and for some cases in the commercial sector hundreds of thousands. Whether you own a residential investment property or own/lease a commercial property and have only found out about tax depreciation, it is worth having a conversation with us to see what we are able to achieve for you! Better late than never…”
Mark Wilkins – Director, Capital Claims Tax Depreciation

Don’t have a depreciation schedule for your investment property yet?

It’s not too late!  Contact our friendly team to discuss your property and find out if you have depreciation deductions available that you are missing out on.  We provide a personalised quote and estimates of deductions up-front so you can feel confident before proceeding.  Get in touch today on 1300 922 220 or click here to request a quote online!

FAQ’s

How much can you claim for depreciation?

The amount you can claim against your property depends on a number of key factors.

Some of the elements to consider are the type of property you have, the age of the property, when you purchased the property, and when you first started generating income from it.

With so many things to consider, it is always best to call a tax depreciation specialist and ask for an estimate of tax depreciation deductions for a specific set of circumstances.

What are the rules for depreciation?

As an investor, it is most important that you use a qualified and registered tax depreciation specialist. You must also depreciate the assets using either the prime cost method or the diminishing method. Once a method is chosen; this method must continue to be used moving forward for the investment property.

When can I claim depreciation on my rental property?

While many people wait until the end of the tax year to order a depreciation schedule, this can in fact be done at any time. Your schedule will start from the day following settlement and as soon as the property is income producing. For instance, if you settle on the 27th of June 2023 and your tenant moves in on the 28th of June 2023, you can start claiming from that date.

How does depreciation work for tax purposes?

Claiming depreciation can assist in reducing your taxable income. In the same way you claim for expenses such as real estate fees/bank fees/interest/repairs etc – you can claim against the wear and tear of the building and assets. For example; (excluding all other factors) if the taxable income is $40,000 per annum and the tax depreciation deduction is $5,000 then the investor will only pay tax on the new taxable income of $35,000.

Related articles:

What tax deductions can I claim on my rental this financial year?

Can investors claim depreciation on second-hand properties since the legislation change in May 2017

What is Division 43 or Capital Works?

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