A Note from Our Accountant on Maximising Depreciation on Investment Property Purchases

Menique Stuart

Have you recently purchased an investment property and not filed a tax return for it yet?

Now is your chance to maximise the depreciation allowed by Inland Revenue, which increases your expenses and reduces the tax you have to pay. A Chattels Valuation will help you to do this.  

What is a Chattel?

Chattels are items of personal property, that were never intended to be fixed to the house and can be removed without causing damage to the property. Examples of a Chattel

  • Appliances: stove, dishwasher, oven, microwave, rangehood etc), heatpumps, alarms, 
  • Fixed floor coverings, blinds, curtains and drapes
  • Light fixtures, TV Aerials, Clotheslines
  • Many other items as defined by Inland Revenue

What is a fixture?

Any chattels that are fixed to the land become part of the land and are then known as fixtures. 

Examples of a Fixture: 

  • The dwelling, garages, ranchsliders, bifold doors 

What’s the difference between a Registered Valuation and a Chattels Valuation?

A registered valuation is done for finance purposes, so that the lender (or buyer) can be assured about the value of land and buildings that are being purchased. The value is based on the current market value of similar properties in the area. 

A Chattels valuation will split the purchase price of your investment property into:

  1. Land – not depreciable
  2. Building Structure – not depreciable for residential property since 2011
  3. Chattels and building fitout – varying depreciation rates, depending on the items. 

It will itemise all the chattels that belong to that property and give it a value. If the chattels are not separately itemised, then they will be included as part of the building and you can’t claim depreciation on residential buildings. 

Is it worth getting a Chattels Valuation done? 

A chattel’s valuation costs around $400 – $500 plus GST. It is tax-deductible and you will most probably more than recover the cost of the report in your first tax return due to the increased depreciation that you can claim.  Remember you will be able to claim the increased depreciation every year, so you will definitely get benefits over a long period of time. If you don’t want to pay for one and can estimate the costs accurately you could do this yourself with advice from your accountant.

An actual example

Purchase price $1,080,000. The chattels valuation split the price into:

Land  $725,000 Not depreciable
Building and fixtures  $306,000 Not depreciable
Chattels  $49,000 Varying depreciation rates
Total purchase price $1,080,000  

The annual depreciation on chattels of $49,000 could be around $3000 – $4000, which more than covers the expense of the initial chattel’s valuation. Remember you can claim the additional depreciation every year. 

Summary

  • A Chattels Valuation itemises and gives a value to the chattels of an investment property that can be depreciated according to Inland Revenue
  • This will increase your depreciation expense and decrease your profit and therefore you will have less tax to pay. 
  • It must be done in the year you purchase the property. 
  • If you have already filed a tax return for your investment property, then it’s most probably too late to get a chattels valuation done. 

Talk to your Accountant to get further information or if you are on a Gold package, contact Dammi Ameratunga, (dammi.ameratunga@raywhite.com) our Company Accountant for further information.