The structure of a property, as well as the assets within it, wears down over time and depreciates. Owners of income-producing properties can claim this depreciation as a tax deduction, according to the Australian Taxation Office (ATO). Capital works and plant and equipment are the two types of depreciation that can be claimed.
What is Property Depreciation?
Capital works deductions apply to wear and tear on the property’s structure as well as any fixed features such as the roof, walls, and driveway. Plant and equipment deductions cover the wear and tear of easily removed fixtures and fittings such as carpets, hot water systems, and air conditioners.
Impact of Calculating Tax Depreciation
1. Better asset value estimation
Depreciation accounting helps you in determining how much value your assets have lost over the course of the year. Your profit and loss statement must include this figure, which must be reduced from your revenue when computing profit and loss. In the absence of depreciation, you will overestimate your costs and believe that you are making more money than you actually are, according to your financial statements.
2. Lower Tax Bill
Because depreciation reduces your earnings, it may also result in a reduction in your tax liability. If you fail to account for depreciation, you will wind up paying an excessive amount of tax. You can deduct the entire amount of an asset from your taxable income over time. However, there are restrictions on how quickly you can depreciate some assets from a taxation standpoint, which are outlined below.
Ways of Calculating Depreciation
Prime Cost Depreciation (Straightline)
This strategy is based on the idea that the value of a depreciating asset decreases in an even manner throughout the course of its useful life.
The Diminishing Value Method
This alternate strategy, on the other hand, is based on the premise that the depreciating asset’s value will fall the most during the first few years of the asset’s useful lifetime.
What is the depreciation schedule for an investment property?
The tax depreciation schedule for any form of investment property can be prepared by a quantity surveyor who specializes in this field. An investment property’s lifespan depreciation schedule includes all capital improvements as well as depreciation on plant and equipment. Using this tax depreciation schedule, the investor’s accountant will calculate their depreciation deductions for each financial year. Investors’ taxable income is reduced as a result of these deductions, resulting in lower tax payments.
Looking for a quantity surveyor for your property?
Because it is all we do, Koste is a leader in tax depreciation. We are well-versed in all elements of property tax depreciation, including current legislation, which is updated on a yearly basis. Many successful businesses rely on Koste as their asset and tax depreciation provider to ensure they get the most out of their investments. Talk to our experts today!