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What is a Tax Depreciation Schedule? By Paul Palella of Property Wealth Australia Pty Ltd.
Property tax allowances are an invaluable component of any property investment due to its ability to improve an investor’s return and produce a healthier cash flow by maximizing available tax deductions. You may already know that in a typical investment property, the ATO will allow claims for depreciation on items such as carpet, light fittings, curtains, white goods, hot water systems. However there are many other items which may be claimed and are commonly overlooked. The Australian Taxation Office (ATO) recognises around 1500 items that can be depreciated, many of which are disregarded by investors who do not have a suitably prepared tax depreciation report. For a sample of these items, please visit our web site at www.propertywealth.com.au and go to “Property Investors”
What is Depreciation? Depreciation is a reduction in value of an asset or commodity. For example, with an investment property you can break the property up in to a number of categories. Firstly the land on which the property is built, secondly the building or dwelling that is on the land and thirdly the fittings inside the dwelling such as washing machines, stoves, dishwashers etc. The physical value of the dwelling and the fittings as component of an investment property are said to depreciate due to the effects of wear and tear. In accounting terms, depreciation involves the writing down of the cost of these assets over the anticipated useful life. The Division 43 Construction Allowance (Income Tax Assessment Act 1997) qualifies if your investment property was built after July 1985 (visit our web site at www.propertywealth.com.au and go to “Property Investors” for specified dates) and amounts to either 4% or 2.5% of your portion of the construction costs of the whole unit complex or dwelling. In addition to this claim, plant and equipment such as carpet, light fittings, white goods, air conditioning, fire hose reels etc. can be depreciated at rates ranging from 5% - 20% of their cost. To determine the original construction cost of your building and thus claim Division 43 Construction Allowance, you will need to engage the services of a qualified Quantity Surveyor. ATO Rulings state that where a taxpayer is genuinely unable to precisely determine the actual cost of the building for the purposes of Division 43, a building cost estimate by a Quantity Surveyor or other independent qualified person may be used. Correspondence from the Australian Tax Office further goes on to state that “valuers, real estate agents, accountants and solicitors generally have neither the relevant qualifications nor experience to make such an estimate.”
What does a Depreciation Schedule Include? Our Depreciation Schedules provide you and your accountant with both Prime Cost and Diminishing Value calculations so that you can select the optimum claim. Division 43 Construction Allowance and Structural Improvement Allowance, which includes building fees, architectural and other professional fees, associated with the cost of construction. We also provide a Tax Depreciation Claim Summary that neatly summarises all the necessary information, which includes adjustments for part year claims, so that your accountant spends less time preparing your return. We can also include detailed photographs of all items plant and articles listed in our schedule. This could streamline the audited process by the ATO and thus saving your accountants time and consequently you money.
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