A property’s assets and structure degrade and lose value as it ages. If you bought an investment property with the intention to rent it out and earn income, the Australian Taxation Office allows landowners to deduct this depreciation from their income.
Here at JC Tax Depreciation, we offer our in-depth expertise in real estate depreciation, for both commercial and residential rental property. Customers in Melbourne and all around the country trust our team for prompt tax depreciation schedules.
Our quantity surveyors help our customers save thousands of dollars in taxes every year, so enquire for your tax depreciation estimate today.
Depreciation Packages
Depreciation Package
PLUS
$550
plus GST- Quantity Surveyor Full Depreciation Reports
- 40 Year Depreciation Report
- Prime Cost vs Diminishing Value
- Low Cost & Value Pooling
- Director Sign Off
- Photos of Property
- Property Research/Analysis
- RP Data
- Emailed to you or your Accountant
- ATO Compliant
- On average, clients receive a return of 10 X their fee
- We can estimate your tax return over the phone
Depreciation Package
STANDARD
$495
plus GST- Quantity Surveyor Full Depreciation Report
- 40 Year Depreciation Report
- Prime Cost vs Diminishing Value
- Low Cost & Value Pooling
- Director Sign Off
- Property Research/Analysis
- Emailed to you or your Accountant
- ATO Compliant
- On average, clients receive a return of 10 X their fee
- We can estimate your tax return over the phone
Understanding What Property Depreciation Is
As many property investors know, a landowner can use property depreciationas a tax deduction to lower their tax liability.
Depreciation is a key advantage for real estate investors who want to maximise their earnings from their investment property. How it works is that you can deduct the decline in value of an investment property from your taxable income.
It’s important to understand how to use the depreciation on your investment properties, when it comes time to submit your taxes.
Though it may seem small, the sums involved in tax depreciation can add up fast. Taking this step can significantly affect a real estate investor’s cash flow.
Taking Advantage of the Full Opportunity
If you are new to real estate investing, it would pay to understand how to use tax depreciation before making your next purchase. Thousands of dollars are lost each financial year by investors who don’t use this opportunity to reduce their tax liability.
You don’t have to be a sophisticated real estate investor with a diverse property portfolio to use tax depreciation to your benefit. Anyone who owns an investment property can write off the depreciation expenses against their taxable income. This covers the price of the structure as well as all of its belongings.
Qualified quantity surveyors are all you need to engage to give your accountant all the information they need to save you tax dollars.
How to Claim Depreciation for Capital and Plant
When it comes to the tax depreciation of investment properties, there are two different types of claims you can make.
Investors can deduct taxes on the decline in value of the “capital”, or the structure of the building, as well as the “plant”, or the assets connected to the building.
Capital is covered by Division 43. This takes into account the value of the building’s structure, as well as the non-removable items that are seen as being inextricably linked to the structure, from roofs, ceilings and walls to bathtubs, toilets and driveways.
If you are struggling to understand what comes under “capital”, it can be helpful to think of it as items at the property that can’t be relocated.
The value of the building’s removable items comes under Division 43. This section refers to tools and machinery that are easily transportable or mechanical in design. This includes all moveable kitchen items such ovens and dishwashers as well as hot water systems, air conditioners, floors, carpets and window coverings.
How Tax Depreciation Is Calculated
In Australia, when you purchase an investment rental property, you are deemed to have purchased both the building and all of the many individual items inside. This applies for both residential property depreciation and commercial property depreciation.
Real estate investors are required by the ATO to determine how the value of the whole asset is divided between capital and plant. You must consult with tax depreciation quantity surveyors to estimate construction costs and specify which parts of the property are permanent and which are removable.
Property owners may be eligible for a tax deduction at a rate of 2.5 percent, for a maximum of 40 years. Eligibility will depend on the dates of construction and/or renovation of the building.
Between 85% and 90% of most tax depreciation claims are covered by capital works deductions, rather than plant.
Though claims on plant and equipment depreciation are smaller, they can still add up to significant savings when summed together.
For each type of asset that falls under this category, the depreciation rate of the item is determined by how they are used and what their useful lifetimes are expected to be.
Around 6,000 plant and equipment assets are listed by the ATO as being eligible for tax depreciation claims.
These assets can be depreciated using either the prime cost or diminishing value methods to calculate tax depreciation.
The diminishing value method is the formula that is most frequently used for plant and equipment assets. The tax depreciation is computed as a proportion of the asset’s depreciable balance. As a result, the greatest tax deductions come during the initial years of the lifetime of an asset.
Alternatively, there is the prime cost method for working out plant and equipment depreciation. Here, tax depreciation is calculated as a percentage of the cost.
Since deductions are spread out evenly over time rather than being front-loaded into the first few years of ownership, the prime cost approach results in tax deductions that are constant from financial year to financial year.
How Much Could You Save from Tax Depreciation?
The exact amount you could save from your taxes depends on the method you use to determine the tax depreciation rates.
There are several factors to consider while constructing a tax depreciation schedule. The tax savings from depreciation might differ greatly, as they are specific to each investment property.
Tax depreciation is a kind of non-cash deduction, as it’s a reduction in the amount of tax owed, rather than a rebate that is credited to your account.
Tax depreciation schedules require a certain amount of professional experience since it is a highly specialised topic.
When construction values and costs are uncertain, quantity surveyors are the specialists who are best qualified to make an educated guess for a tax depreciation schedule.
The ATO stipulates that a tax depreciation schedule cannot be estimated by other professionals, such as a real estate agent, valuer, accountant or solicitor.
Enquire for a property depreciation report from our team in Melbourne, or learn more about our services for tax depreciation Sydney and tax depreciation Brisbane.