what is tax depreciation? as a building gets older they wear out, basically they depreciate. the ato...
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WHAT IS TAX DEPRECIATION?
• As a building gets older they wear out, basically they depreciate. The ATO allows owners of income producing properties to claim this depreciation as a deduction against their assessable taxable income.• A quantity surveyor is the best professional to help calculate these
deductions as recognized by the ATO.• There are two areas of depreciation available :
• Plant and Equipment (Division 40)• Capital Works Allowance (Division 43)
PLANT AND EQUIPMENT (DIVISION 40)• Available to all investments properties, for new and second hand, regardless of age.
• No matter how old the property is, there will be deductions entitlements for plant and equipment items
• Legislation allows plant to be revalued and given new effective lives from date of settlement.• ATO has list of effective lives for all the different types of plant and this list also
determines what is considered plant and what is not.• Plant and equipment be depreciated two ways, diminishing value method and prime cost
method.• Rates of depreciation are determined by the effective life of the asset.• Individual items with a value less than $300 can be written off in first year• Other items with a value less than $1000 can be put into Low Value Pool and depreciated at
18.75% first year and 37.5% following years.
Examples of Plant & Equipment items• Air conditioners
• Blinds and curtains
• Light fittings, ceiling fans, security systems
• Carpets, vinyl, floating timber floors and other removable floor coverings
• Kitchen appliances, ovens, cooktops, rangehoods, dishwashers etc.
• Hot water systems, solar panels and many more
CAPITAL WORKS ALLOWANCE (DIVISION 43)• Commonly known as building allowance, this deduction is for any capital
expenditure incurred in constructing, altering or refurbishment of a building, built after 18 July 1985.• Also includes structural improvements such as driveways, fences, retaining
walls etc. built after 27 February 1992.• Unlike plant and equipment, building allowance is based on historical
construction costs.• Effective life of a residential property is 40 years presently, so they are
depreciated at 2.5%.• Building allowance is depreciated using prime cost method of depreciation.
Rates of Depreciation TableHotels, Motels Manufacturing Other Residential Structural
& Guest Houses Commercial ImprovementsPresent
to 4% 4% 2.5% 2.5% 2.5%27-Feb-92
26-Feb-92to 2.5% 2.5% 2.5% 2.5%
16-Sep-87
15-Sep-87to 4% 4% 4% 4%
18-Jul-85
17-Jul-85to 4% 4% 4%
22-Aug-84
21-Aug-84to 2.5% 2.5% 2.5%
20-Jul-82
19-Jul-82to 2.5%
21-Aug-79
Benefits of using KC Partnership?
• You get a qualified quantity surveyor preparing the report.• We do a detailed site inspection of your property and common areas if
applicable• This is important part of the process as it identifies all the plant and equipment that
is claimable, which helps to maximize the deductions.
• Our reports are ATO compliant and come with a 40 year summary of claims and 10 years of written down values on plant and equipment.• If you have any queries about the report you can talk directly to the QS
who prepared it.• We have a fast turnaround and provide you with an electronic copy of the
report.
Example 1
Capital Allowances Yearly TotalYear 1 7,320 5,241 12,561 Year 2 7,621 5,241 12,862 Year 3 5,555 5,241 10,796 Year 4 4,457 5,241 9,698 Year 5 3,614 5,241 8,855
Year 6+ 10,419 183,208 193,627 Totals 38,986 209,413 248,399
3 Bed 2 Bath TownhousePurchase Price - $374,000
Depreciation On Plant
Example of property investor benefits.
Without Depreciation With DepreciationIncome 90,000.00$ 90,000.00$
Rental income 20,800.00$ 20,800.00$ Deductions
Interest, rates etc. 32,000.00$ 32,000.00$ Depreciation 12,561.00$
Taxable Income 78,800.00$ 66,239.00$ Tax Payable 18,339.00$ 14,061.00$
Saving 4,278.00$
Example 2
Capital Allowances Yearly TotalYear 1 6,302 4,360 10,662 Year 2 6,525 4,360 10,885 Year 3 4,736 4,360 9,096 Year 4 3,816 4,360 8,176 Year 5 2,774 4,360 7,134
Year 6+ 9,813 117,713 127,526 Totals 33,966 139,513 173,479
4 bed 2 bath housePurchase Price - $530,000
Depreciation On Plant
Example 3
Capital Allowances Yearly TotalYear 1 9,591 4,554 14,145 Year 2 9,046 4,554 13,600 Year 3 7,022 4,554 11,576 Year 4 5,099 4,554 9,653 Year 5 3,780 4,554 8,334
Year 6+ 16,848 158,610 175,458 Totals 51,386 181,380 232,766
Depreciation On Plant
Inner City Highrise - 2 Bed UnitPurchase Price - $395,000
Example 4
Capital Allowances Yearly TotalYear 1 36,504 7,352 43,856 Year 2 38,708 7,352 46,060 Year 3 26,851 7,352 34,203 Year 4 19,052 7,352 26,404 Year 5 13,842 7,352 21,194
Year 6+ 44,199 127,947 172,146 Totals 179,156 164,707 343,863
Depreciation On Plant
Holiday House with FurniturePurchase Price - $1,800,000
