Deductions and expenses: Depreciation (Rental Property Furniture)

Whether the furniture in a property let as fully furnished constitutes plant or articles subject to depreciation and, if so, whether an immediate deduction can be claimed where such items cost exactly $300, or less.

Furniture in a property let as fully furnished does constitute plant or articles subject to depreciation and an immediate deduction can be claimed where such items cost exactly $300, or less.

The taxpayer has a rental property which was advertised for rental on a fully-furnished basis from 7 June 1997. However, rental was not secured until after the end of the financial year.

Furthermore, the current lease is for a short-term and the taxpayer may offer the rental property on an unfurnished basis if it proves difficult to let on a fully furnished basis.

In this scenario, the household items may be absorbed for private use, placed in storage, or disposed of.

A deduction for depreciation is allowable on property which qualifies as plant or articles used during the year for the purposes of producing assessable income or installed ready for use for that purpose and held in reserve under the Income Tax Assessment Act 1936 subsection 54(1) or the Income Tax Assessment Act 1997 section 42-15.

Items held in a property that is available for letting will be depreciable, provided it can be shown that active and bona fide efforts were made to obtain tenants during that time.

As this furniture constitutes depreciable items of plant or articles costing exactly $300 (or less), an immediate deduction can be claimed for those items. The Income Tax Assessment Act 1936 Subsection 55(2) or the Income Tax Assessment Act 1997 section 42-167 allows an outright deduction, that is a prime cost rate of depreciation of 100%, for individual items costing $300 or less (Taxation Determination TD 93/159).

There is no minimum period of time depreciable plant or articles must remain in a rental property before an outright deduction is allowed. An immediate deduction is allowable if the depreciable items are used in a rental property earning income or are installed ready for use in a rental property in order to produce income.