Tax Depreciation Explained
Tax Depreciation - Maximise Your Return & Improve Your Cashflow
Property Tax Allowances prepared by Asset Economics will ensure you receive your full Tax Allowance and Depreciation benefit available under the current tax legislation. As a registered member of the Australian Institute of Quantity Surveyors, we have access to the act, tax cases and tax rulings.
The Tax Office will accept Tax Depreciation Schedules based on estimates prepared by a Quantity Surveyor (IT 2640).
General tax depreciation information
A Tax Depreciation Schedule is simply a report on all the items in an investment property that are decreasing in value. For properties built after 18th July 1985 this includes the building itself and if your property qualifies, it is important that the construction cost be estimated by a Quantity Surveyor in the absence of original construction data being available from the vendor. A number of firms that supply tax depreciation schedules do not use Quantity Surveyors so it is important to check!
All investment properties can have their assets depreciated and even older properties often contain sufficient fixtures and fittings to make them viable candidates for a professionally prepared Tax Depreciation Schedule. Most renovations carried out after 18 July 1985, even by previous owners, can be depreciated.
ATO List of Expenses for Residential Property
Immediate tax depreciation write off and low value pool
If you have purchased an asset for your rental property during this tax year and it is valued under $300, you can claim the entire cost on your 2007/08 return. That is why many investors wait until near the end of the financial year to add things to their properties.
The Low Value Pool rules can be applied to assets that cost between $300 and $1,000. The pool enables items to be depreciated more quickly. Items that enter the pool during the year are depreciated at 18.75% in the first year, and then 37.5% per year after that on the diminishing total.
The difference between a repair and improvement
It is important for property investors to know the difference between a repair and an improvement so that you maximise your claim legally. A repair is generally defined as 'restoring something to a working condition' and usually involves fixing part of an asset. Repairs can be claimed as an immediate deduction.
An improvement is when you improve the condition of the asset and these need to be depreciated over the ATO’s appropriate effective life. So buying a brand new stove to replace the 'tired & old' stove is an improvement, as is replacing the entire roof or painting the entire property.
Tax depreciation explained through a practical example
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Tax Depreciation Explained PDF
Tax Depreciation Explained.pdf