Tax depreciation is a deduction against assessable income that allows the property owner or investor to receive a reduced tax bill. The deduction is based on the property's depreciating value.
A tax depreciation report is prepared by a quality surveyor. The report shows how much depreciation an owner or investor can claim on a property over the life of the building. A tax depreciation report should include methods for both the prime cost and diminishing value. The report identifies each year, from the purchase date, the tax depreciation claim available.
The two types of property tax depreciation are below.
Capital allowance (also known as Division 43)
A capital allowance depreciation relies on the property's construction costs. These costs can include building, architectural, engineering, and surveying fees. What it doesn't include is site preparation or acquisition costs.
The rate of depreciation is set over a specific time period. This is determined by ATO legislation criteria. The components that fall under Division 43 are concrete, driveways, the actual building structure, and many other capital improvements.
Plant and equipment (also known as Division 40)
These assets are subject to a higher rate of depreciation than that which applies to the property itself. Included assets in this category are defined by ATO legislation, with the rate of depreciation rate set by the Commissioner of Taxation. This rate of depreciation is based on how the Commissioner deems the assets' effective life to produce assessable income. Typical items in this category include range hoods, ovens, hot water systems, door closers, curtains, carpets, blinds, and air conditioners.
Deductions are worked out based on an asset's opening or residual value and depreciate through effective lives and rules as laid out by the Australian Tax Office (ATO).
Working with a quantity surveyor
A tax depreciation report should be undertaken by a qualified and experienced quantity surveyor. For a truly professional service, you should work with a quantity surveyor that's listed as a registered tax agent and a member of the Royal Institution of Chartered Surveyors and the Australian Institute of Quantity Surveyors.
A professional quantity surveyor can answer any questions you may have, make sure that nothing is missing on your claim and that your report adheres to the ever-evolving rules. They should also help you claim the maximum amount available. For an up-to-date depreciation report, get in touch with a qualified and experienced quantity surveyor today.
Reach out to a company that offers tax depreciation services to learn more.