Tax Depreciation Schedules

Property investors risk paying more tax than required, especially when property depreciation is overlooked. Vanguard Valuations will work with you or your accountant to ensure that your depreciation claim for your investment property is maximized each financial year.

Property depreciation refers to the wear and tear of a property over time and includes the decline in value of the building structure, permanently fixed items and plant and equipment within the property. In the context of tax, investors can offset an investment property’s decline in value from their taxable income.

A depreciation schedule is a report that lists all depreciable assets for residential or commercial assets. The schedule comprises of capital works and plant and equipment. Capital works comprises of items that are permanently fixed to the property. On the other hand, plant and equipment are tangible long-term assets associated with the property that typically have a life of more than one year. Some of the depreciable assets commonly found within a property include (but are not limited to):

Capital Works Plant and Equipment
Flooring
Air-conditioning
Roofing
Hot water system
Sinks and Basins
Ovens
Tiles
Ceiling fans
Kitchenette (Commercial)
Shelving (Commercial)
Office partitions (Commercial)
Manufacturing equipment (Commercial)
Car spaces (Commercial)
Warehouse hoists (Commercial)

Calculating Depreciation

The two methods for calculating depreciation as prescribed by the ATO includes the Prime Cost Method and the Diminishing Value Method.

The Prime Cost Method (also referred to as the straight-line method) assumes that the value of an asset decreases at a linear or uniform rate over time. For instance, if an equipment was purchased for $50,000 and has a life span of 10-years, the value of this equipment will fall by $5,000 a year under this method with a depreciation rate of 10% per annum.

The Diminishing Value Method assumes that the value of an asset decreased more in the early years of its effective life, allowing the investor to claim more now but less in the future. The formula for the decline in value is as follows:

After 10 May 2006: ‘Base value x (days held ÷ 365) × (150% ÷ asset’s effective life)’; and

Before 10 May 2006: ‘Base value x (days held ÷ 365) × (200% ÷ asset’s effective life)’

2017 Changes to Residential Depreciation Rules

Changes to depreciation legislation means that depreciation can no longer be claimed for second-hand plant and equipment assets. Investors can still however, claim a tax depreciation on new plant and equipment.

Is my property eligible to claim depreciation?

Property Type Eligibility
Residential
If your property was built after 18 July 1985, you can claim depreciation on building allowance (2.5% or 4% for 40 or 25 years from the date of construction) and plant and equipment. If your property was built prior to 18 July 1985, you can only claim depreciation on plant and equipment. Any extensions or renovations completed after 18 July 1985 will attract capital works allowance.
Non-Residential
If your property was built after 20 July 1982, you can claim depreciation on building allowance (2.5% or 4% for 40 or 25 years from the date of construction) and plant and equipment. If your property was built prior to 20 July 1982, you can only claim depreciation on plant and equipment. Any extensions or renovations completed after 20 July 1982 will attract capital works allowance.
Manufacturing
If your property was built after 21 August 1979, you can claim depreciation on building allowance (2.5% or 4% for 40 or 25 years from the date of construction) and plant and equipment. If your property was built prior to 21 August 1979, you can only claim depreciation on plant and equipment. Any extensions or renovations completed after 21 August 1979 will attract capital works allowance.

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