Tax Depreciation Calculator
Want to know how much tax you could save?
Use this calculator to increase the accuracy of the potential depreciation you could
claim for your investment property.
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
- 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
- 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