October 19, 2018

Understanding Tax Depreciation for Properties

Depreciation is an important element of any investment property strategy. Any Australian property investor would know that tax depreciation will help their bottom line when the time of paying tax comes, since they can claim tax depreciation against their taxable income. A depreciation schedule reduces the taxable income and therefore lowers the amount of total tax payable. The contents of the building as well as the cost of the building itself are entitled to tax depreciation.

There are two types of depreciation allowances:

Depreciation on Plant and Equipment, and on Building Allowance.

There are two types of allowances – depreciation on Plant and Equipment, and on Building Allowance. Plant and Equipment refers to the contents of the building, while the Building Allowance refers to the construction expenses of the actual property.

Are all properties eligible for tax depreciation? In general, you can get investment property depreciation deduction for both old and new properties.New properties generally achieve a greater rate and and overall amount of depreciation. This is because property investors can achieve the maximum Capital Works Allowance, and make the most of low cost pools and immediate deductions for certain assets.

If your residential property was constructed after July 1985, you can claim depreciation on Plant and Equipment as well as the Building Allowance. But if it was built before that date, you can only claim depreciation on Plant and Equipment. Bear in mind that different cut-off dates apply to commercial and industrial buildings.

If your property is renovated, you can also claim tax depreciation. The ATO needs to know the amount you’ve spent on renovations. In the event that you don’t know the renovation costs, for example, since the former owner finished the renovations, the ATO will assign a trained Quantity Surveyor to inspect the property and make an estimation.

To know the amount of depreciation schedule, a qualified Quantity Surveyor will check and ensure that all items to be depreciated are listed down and photographed. This can be used in case an audit is necessary.  According to the Australian Institute of Quantity Surveyors Code of Practices, it is necessary to roll out inspections to meet ATO requirements.

These are some of the things that you need to know about tax depreciation for properties. Learning the different aspects can be a challenge, so ask a qualified individual if necessary so you can better understand how property tax depreciation works.

Do you have other ideas on property tax and tax depreciation for property? Share your insights in the comments section.

About the author  ⁄ Marxa Dillan

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