Tax Depreciation Calculator

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BMT Tax Depreciation / Frequently Asked Questions

  • What is depreciation?

    As a building gets older and items within it age, they depreciate in value. The Australian Taxation Office (ATO) allows property owners to claim this depreciation as a tax deduction. Depreciation can be claimed by any property owner who obtains income from their property. This deduction essentially reduces the investment property owner’s taxable income so they pay less tax.

  • What can I claim?

    Depreciation can be claimed on the structural element of the building as well as the removable plant and equipment items, or fixtures and fittings. Some examples of plant and equipment items on which depreciation can be claimed include carpets, stoves, hot water systems, blinds and air conditioning systems. Investors who own apartments, units or townhouses which are part of a larger complex are also able to claim depreciation on common property items such as driveways, fire equipment, lifts and swimming pools.

  • Why should I consult a quantity surveyor?

    It is recommended investment property owners consult a quantity surveyor to prepare a tax depreciation schedule before lodging a tax return. Quantity surveyors are one of the few professionals recognised to have the appropriate construction costing skills to calculate the cost of items for the purposes of depreciation. They are qualified by the ATO under Tax Ruling 97/25. Investors are encouraged to use a quantity surveyor that is affiliated with industry regulating bodies, such as the Australian Institute of Quantity Surveyors, The Royal Institute of Chartered Surveyors and The Auctioneers and Valuers Association of Australia.

  • What is the difference between prime cost and diminishing value methods of depreciation?

    One of two methods can be used when calculating depreciation on assets; diminishing value and prime cost. Under the diminishing value method, deductions are calculated as a percentage of the remaining value of each item. This allows the investor to claim a greater portion of the asset’s costs sooner. Under the prime cost method, deductions are calculated as a percentage of the cost. Selecting this method allows the investor to claim smaller deductions over a longer period of time. The method chosen will depend on the strategy of the property investor.

  • What is pooling?

    Low-value pooling is a method of depreciating plant and equipment items at a higher rate to maximise deductions. The following categories of assets can be allocated into a low-value pool to increase the owner’s cash return:
    Low-Cost Pool: A low-cost asset is a depreciable asset that has a cost of less than $1000 in the year of acquisition. Low-Value Pool: A low-value asset is a depreciable asset that has an un-deducted value of less than $1000. That is, the cost of an asset is greater than $1000 in the year of acquisition. However, the remaining value after previous years’ depreciation is less than $1000. Assets meeting both these classifications can be placed in an itemised low-value pool and depreciated at an accelerated rate. Property investors who place assets in the low-value pool are able to claim them at a rate of 18.75% in the year of purchase regardless of how long the property has been owned and rented. From the second year onwards, the remaining balance of the item can be claimed at a rate of 37.5%.

  • What does a tax depreciation schedule contain?

    A well prepared, professional tax depreciation schedule assembled by a quantity surveyor who specialises in depreciation, such as BMT Tax Depreciation, will include:

    • A method statement.
    • A schedule of diminishing value method of depreciation.
    • A schedule of prime cost method of depreciation.
    • A schedule of pooled items for the property.
    • The capital works allowance available for the property.
    • Detailed forty year forecast table illustrating all depreciable items together with building write-off for both prime cost and diminishing value methods.
    • Comparative table of the two methods of depreciation.
    • Common property items with strata or community title complexes such as lifts and swimming pools are included in the depreciation report for a unit in a multi-unit development.
    • The tax depreciation schedule should be structured to facilitate the client to be able to amend previous year’s tax returns to re-coup unclaimed or missed depreciation benefits.
    • The tax depreciation schedule is pro-rata calculated for the first year of ownership based on the settlement date so that the accountant has the exact depreciation deductions for each year.
    • The tax depreciation schedule is valid for the life of the property until capital improvements are undertaken or ownership changes.
    • When there are multiple owners, a depreciation schedule should be structured specifically to maximise deductions for everyone involved.

  • Can I still claim depreciation if the property was built before 1985?

    Depreciation can be claimed on any income producing property despite the age or size of the property. This includes residential homes, units and apartments, rural properties used for primary production, commercial properties and large development complexes. Many property investors wonder whether it is worthwhile to claim depreciation on older properties. New properties will receive higher depreciation deductions due to the higher starting value of fixtures and fittings and construction costs, however older properties can attract significant deductions. If a residential building commenced construction after the 18th of July 1985 a deduction on the structural element of the building is available. For commercial properties, building write-off can only be claimed if construction commenced after the 20th of July 1982. In both cases structural renovations carried out after these dates qualify. Depreciation on the fixtures and fittings within a property can be claimed regardless of the building’s age.