As a society, we are becoming more aware and considerate of what is needed to alter our habits and consumption in order to reduce our emissions and waste. Part of this requires our built environment to be more energy efficient and environmentally sustainable.
Across Australia brand-new unit developments that are being constructed now have EV (Electric Vehicle) chargers in their basement carparks, Electric Vehicles for sharing, green spaces, and rooftop solar panels for residents to tap into renewable energy sources. Brand-new homes and established residential buildings undergoing extensions must now comply with the state’s energy efficient standards. This all works towards reducing our dependence on fossil fuelled energy sources.
If you are developing or modifying an investment property, you will be required to comply with your state’s standards. Below are the current and future benchmarks for each state.
New South Wales
New South Wales has introduced a 7-star energy rating, up from 5.5 stars, for any brand-new homes or renovations costing more than $50,000 from October 2023. BASIX has more information about how to achieve a 7-star energy efficient rating.
Queensland’s brand-new homes/townhouses or major renovations must achieve a 6-Star energy rating. Brand-new units or major renovations to units must achieve a 5-Star energy rating. The Queensland Government has more information about sustainable housing laws.
Victoria’s introduced new minimum standards for rental properties in March 2021 and by 2023 all rental properties are required to have a two-star energy rated heater. Consumer Affairs Victoria has more information about minimum standards.
Brand-new homes as of the 26th of August 2022 are now 7-star energy rating, up from 6 stars. Rebates are available for solar panels to help achieve this rating. The Victoria State Government has more information about energy efficiency building standards.
Tasmania’s brand-new residential buildings, additions and extensions to existing homes must comply with the 6-Star energy rating. The Tasmania Government has more information about building and energy efficiency requirements.
South Australia’s brand-new homes and extensions must meet the minimum energy efficiency requirement as stated in the Building Code of Australia. There are three climate zones that have different energy efficiency star rating.
Northern Territory’s brand-new houses and renovations to existing houses must achieve a 5-star energy rating. Brand-new apartments must achieve a 3.5-star energy rating. For any other type of buildings in NT there is no minimum star energy rating. The Northern Territory Government has more information about building and energy efficiency requirements.
Western Australia’s brand-new homes must meet the Building Code of Australia requirements. The minimum is 6-star energy efficiency rating. The Government of Western Australia has more information about building and energy efficiency requirements.
Depreciation claims for energy efficient assets and capital works
Whether you choose to invest in a residential home or unit, or you are wanting to upgrade your existing investment property to be more energy efficient, you are entitled to claim depreciation over brand-new energy efficient assets that you have installed, or any capital works completed.
Energy efficient assets
One of the most obvious assets to assist in our mission to reduce emissions is Solar Powered Generating Assets. Below we will look closer at solar panels and the applied rules for depreciation. Other assets that can be audited and considered in reducing energy usage and are claimable as Division 40 Assets are:
- Electric Vehicle charger;
- Heating and cooling appliances;
- Washing machine;
- Hot water system.
If you are contemplating making your existing investment property more energy efficient other than replacing assets, capital works known as Division 43 completed are depreciable as well. Some capital works examples are:
- Replacing the insulation in either the roof, walls or floor;
- Replace windows with double glazed windows;
- Increasing eave projections;
- Heat reflective paint.
Depreciation of solar panels
By Installing a “new” solar array at your rental property you can increase your tax deductions and potentially increase your cash flow. Not only are solar panels attractive to tenants, but solar systems are also classified as a plant and equipment item, Division 40, and you are entitled to claim the property depreciation tax deduction.
If you are a small business owner or a sole trader, make use of the small business instant asset write-off provisions. For further information read our blog.
A solar panel system can generate great rental property depreciation deductions for you. The below table outlines the cost of a solar panel system and what property depreciation deductions are claimable:
There are many benefits in having your residential investment property or commercial investment property powered by solar panels and become energy efficient:
- You may be able to claim the depreciation deduction to help reduce your taxable income;
- Tenants may be happier to pay more rent as they will have a lower electricity bill;
- Your property could be considered more affordable for tenants with their electricity savings;
- Your rental yield may increase;
- You are helping reduce the greenhouse emissions.
Origin Energy completed a survey and stated that “55% of renters saying they would be willing to pay up to $10 a week more in rent for a property with solar.”
How do you claim for property depreciation?
You will need to organise a depreciation schedule from a qualified quantity surveyor.
Our depreciation schedules are a one-off investment that could potentially save you thousands every financial year.
Your schedule will start from your settlement date and project forward for the next 40 years, during which time you can make annual claims against the income being produced.
Get in touch with one of our friendly experts today! Call us on 1300 922 220 or simply complete our free online quote! We will be happy to discuss either your residential or commercial investment property.