What Are the Different Ways to Calculate Depreciation?

For a company that owns assets, the annual asset reduction is reflected in its financial statements like the balance sheets and the tax depreciation reports. There are different ways in which the value of depreciation is calculated. This depends on the country or region, of course and the calculation method could depend on the type of a particular asset. Let us understand this with the example of strata corporations with five or more strata lots. They need to obtain a specific strata property act depreciation report.

Let us look at three different ways to calculate depreciation.

1. Straight-Line Depreciation:

This is a single dimension calculation. The basis of the calculation is the estimate of how long the life of a particular asset. The straight-line depreciation method assumes an estimated value of the asset after the passage of those many years. After that, it is a simple matter of subtracting the final value from the original value to get the amount of depreciation.

2. Sum-of-the-Years’ Digits Depreciation:

In this method, the useful life of an asset is calculated/estimated. The numbers of each of these years are totalled. So, if an asset has a 7 year estimated span, then the sum would be 7 + 6 + 5 + 4 + 3 + 2 + 1 = 28. So the rate of depreciation in the first year would be 7 / 28 = 25%. The second year’s depreciation would be 6 / 28 = 21%, and so on, till it depreciates by less than 4% in its last year.

3. Declining Balance Depreciation:

There is a difference in the ways in which the above two ways affect the depreciation amounts listed on an ATO tax depreciation schedule. The first one shows a uniform rate of depreciation throughout the expected life. The second one assumes a higher rate of depreciation in the initial years. This reduces as the years go by.

The declining balance depreciation method also takes in much higher depreciation in the initial years. The depreciation on any asset is usually written off the owner’s tax liability. That is why this method tries to write off the depreciation costs faster. The logic behind this is that most assets are more useful in their initial years.

Conclusion:

The interesting thing is that there are several more methods of calculating depreciation. The second even more interesting thing is that the rates and depreciation calculated by each of these methods would be different. That is why the services of an experienced and capable company like Deppro Victoria should be used. They have experts who would understand your business and your accounting styles. Accordingly, they would suggest the best way of calculating depreciation and claiming tax breaks.

 

Why You Need a Depreciation Schedule for Your Investment Property

Savvy investors, nowadays, indulge in property investment with the prospect of re-selling the property at higher prices. While this investment decision is highly fruitful, a little know-how of the field can help in making the most of the opportunity.

Depreciation on property is one such aspect that has to be taken into consideration. With the know-how of property depreciation, information on tax depreciation schedules is also vital.

What is a Tax Depreciation Schedule?

Depreciation on a property comes from the fact that as a property ages, its components may suffer from wear and tear. The test of time inflicted upon the property leads to a decline in value. Tax Office provides claim to investors against this depreciation.

In order to claim depreciation from the Tax Office, investors require preparation of investment property depreciation schedule also known as a tax depreciation schedule. The preparation of the schedule should be done by a qualified surveyor, who will make a list of all the depreciable items in the property.

The inclusions in the depreciation schedule will be: depreciation on building allowance; depreciation on equipment; on plant; and, precise calculation of each depreciable item. Depreciation on investment property ATO approval is a must. For which you need professional help to draft it for you.

Preparing a Depreciation Schedule

Property depreciation schedule 80 reflects the numerous benefits of having your property’s depreciation schedule developed, which are as follows:

  1. Creation of tax depreciation schedules on a rental property allows the owner of the property to claim renovations done by the previous owner. The owner can also add any new improvement made on the house into the existing schedule.
  2. Beside the approval of claim, the preparation of schedules allows the owner to weigh their subsequent property investments. Investment property calculator can help them to find out the most lucrative properties in terms of depreciation benefits.
  3. Preparation of Property depreciation schedule 80 allows the owner to claim depreciation on building allowance. This means that the owner will get tax benefits upon the building’s structure like the brickwork, roof and timber work.
  4. Depreciation on plant and equipment can become highly lucrative with the aid of depreciation schedules. This is because it covers those items that can be detached from the investment property. Such items cover as high as 35% of the complete cost of a residential building
  5. The benefits of tax depreciation schedules also include improvement of cash flow. This is owing to the reduction of taxable income. Wealth creation gets much easier when the money has been freed up. These further properties can of course be weighed using Investment property calculator.

Wrapping-Up:

It’s the owner’s responsibility to both deduct the depreciating value upon their property as well to claim it. It is not the ATO’s job to remind them. Depreciation on investment property ATO can be a game-changer for an owner’s investment opportunities. Also, property owners should not forget to use the aid of a qualified quantity surveyor for creation of the schedule on their investment property like Deppro QLD.

 

 

How Rental Property Depreciation Works

Investment in rental property has emerged a beneficial financial decision. A rental property can be a stable source of earning for beginners. One can reap tax benefits as well on the rental property benefits. You can cut the rental expenditures from the earning of rental income thus bringing down your tax liability. Meanwhile, the other important tax deduction meant for depreciation works in a different way.  Depreciation can be defined as a process which is used for deducting the expenditure of purchasing and renovating a rental property. Instead of taking a single deduction in the year you buy or renovate the property, depreciation distributes deduction throughout the life of the property. Given below are the factors how depreciation for residential rental property works:

1. Which Property is Depreciable?

You must find out first which property is depreciable. As per the rules of IRS, you can depreciate the property if:

  • You are the owner of the property even if it is liable to a debt.
  • You are using it for any income-generating act or business purpose.
  • Property has got a determined useful life and loses its worth as a result of natural factors.
  • The property may last for more than a year.

2. When Will Depreciation Start?

When a property falls in the category of service or is ready to use as a rental property, you can apply depreciation deductions. You may continue to depreciate the property until any one of the conditions mentioned below are met:

  • If you have deducted all the cost or other bases in the concerned property
  • You leave the property from service even if you could not recover the entire cost or other bases. The property will be retired from service the moment it is not being used as an income-generating property. When you destroy it, convert it or leave it, the property will be retired from service. The property report will provide more information regarding when the property may be retired from service.

Depreciation methods:

There are three factors that will help you decide the amount of depreciation you will be able to deduct every year. These methods are the basis in the property, recovery period, and depreciation method.

Given below are the basic steps:

  • Determine basis of the property: Basis of the property is the cost of the property or money you shelled out in cash or mortgage to buy it. Settlement fees, closing costs which may include legal fees, transfer taxes, etc. are included in the basis.
  • Separate land cost and buildings: You can only depreciate the cost of building and not land, so you must calculate the value of each to depreciate the exact amount. You may require the help of experts to prepare a rental property depreciation report.
  • Decide your basis in the house: When you find out the basis of the property and value of the house, you will be able to find out your basis in the house.
  • Decide adjusted basis if required: There are possibilities that you may need to make an increase or decrease to your basis for some occasions. The occasions may take place between the times when you purchase the property until it is ready to be rented.

Final Thoughts:

Depreciation has emerged as a useful method in case you invest in rental properties. It distributes the cost of acquiring the property in the coming years and brings down every year’s tax liability. However, rental property laws witness frequent changes. Therefore, you must work with an expert tax accountant when building, operating or selling your rental property. They will also explain all of the important details of depreciation residential rental property which will prove extremely helpful.

What You Should Know about Property Depreciation

Most of us begin our real estate affairs without any knowledge of property depreciation. However, knowledge about the term may prove advantageous in the long run, particularly if you have owned a property for a long period of time. In short, investment property depreciation can decrease taxes that you may have to pay as tax time arrives. You can also claim depreciation tax on various other things as well which may include the vehicle that you have been using for generating income. Similarly, you can also seek benefit from real estate property tax depreciation. Your sound knowledge on depreciation for tax purposes will prove beneficial for you.

Here are some important things you should know about property depreciation:

1. Is your property too old for claiming depreciation?

If your residential property was constructed after July 1985, you can still claim building allowance as well as plant and equipment. However, if construction began before the aforementioned date, you will only be able to claim depreciation on plant and equipment.

2. Should your accountant prepare this report?

In case your residential property was constructed after 1985, your accountant will not be allowed to assess construction costs. Neither the real estate agents nor the solicitors can estimate the construction cost. You should be aware of the important details of the tax depreciation report and tax ruling 97/25 issued by ATO.

3. How can you claim depreciation for your property?

It is essential to obtain a property depreciation report. A qualified quantity surveyor will help you secure that report. The surveyor is an expert in estimating the cost of any property. They are qualified enough to prepare a depreciation report even if construction costs are not known.

4. Will you require scrutinizing your property?

It is essential to obtain site inspections which satisfy ATO requirements. The expert quantity surveyor will make sure that all of the depreciable objects are calculated along with their images. It will ensure that you do not skip any deductions. In the scenario of an audit, the documentation will prove useful and can be used as evidence. Quantity surveyors communicate directly with the property manager or tenant so that least interruption is caused to the tenant. They have expertise in preparing tax depreciation schedules and other essential reports to keep you at ease.

5. Will you be able to claim depreciation if the property is renovated?

Yes, however, you must know exactly how much you spent on renovations. In case the earlier owner carried out the renovations, you can still claim depreciation. If the cost of renovation is not known, the expert quantity surveyor will make the estimate.

Final Thoughts:

You can find some of the best-qualified quantity surveyors in Australia at Deppro. They will offer their services at cost effective prices and will not create a hole in your pocket. You can also find a Deppro contact number online. Get in Touch with the depreciation specialists today.

Busting the 7 Myths of Depreciation Schedules

When it comes to tax depreciation, many myths have been floating around specifically regarding what property investors can claim. As you are aware, tax depreciation can benefit any person with an investment in assets or property. And, there are many who are not aware of the depreciation rules for rental property. You need to work out how much your investment property depreciates to claim these values during tax time. A tax depreciation schedule helps in making your rental property work for you. Here are some common myths of depreciation schedules below:

Myth#1: Commissioner’s actual life ruling needs to be utilised for all assets without any exception

Truth: The Commissioner of Taxation’s ruling is only applicable to the new depreciable property. The role of a quantity surveyor is to boost the depreciation deduction for his client. In order to achieve this, he must calculate the actual life of the second-hand assets. He should not assume that all the assets available in the property are brand new. If the asset is depreciable, you can always claim it.

Myth#2: If the assets in the property get damaged, you won’t be able to claim the balance of depreciation

Truth: Division 43 capital works mentions that if taxpayer’s capital works get damaged, the deduction will be available under Undeducted Construction Expenditure.

Myth#3: On the recovery of a depreciable asset, you can claim depreciation on it

Truth: As many investment homeowners use their property at some stage during the year, incorrect figures may surface in their tax depreciation schedule. The main motive of a tax depreciation schedule is to notify the taxpayers on what they may include in a tax return. It may be illegal or misleading if you don’t check whether or not the property was used for private purpose. You must figure out how to adjust the depreciation amount to the right sum.

Myth#4: All the expenses in obtaining a rental property will be able to get depreciated

Truth: The quantity surveyors consistently find any asset to link any and all expenses to claim a deduction without following the laws. It is wrong. You should claim a repair 100 percent only in the year in which it took place.

Myth#5: Once you have spent money on an asset or a capital work, you are eligible to claim it

Truth: As per Division 40, you should start depreciating the asset only when it is ready for use or already used. You should not start to depreciate it from the exact moment when you purchase it.

You can claim deductions only once construction gets over for capital works under Division 43.

Myth#6: If you can’t find depreciable assets in the Commissioner’s yearly ruling, you won’t be able to depreciate it

Truth: The purpose of the Commissioner’s ruling is to assess the exact lives of assets. Not to calculate what is a depreciable property. A depreciable asset is an investment property with a limited effective life. And, they may dip in value with time. Make sure that you are aware of the ATO property depreciation rules.

Myths#7: Your assets get deducted consistently at a 2.5 percent rate

Truth: The rate at which assets get deducted almost always remains at 2.5%. But, at one point of time, you can get a 4 percent rate. The 4 percent rate will be applicable on the income-producing usage of a building with regard to an industrial manner.

Conclusion:

You can seek the help of a quantity surveyor to prepare a detailed house depreciation report. The quantity surveyor will not only help in busting your myths but also maximise your depreciation deductions.

Rental Property Deductions You Need to Know

Like any house, there are regular maintenance works to be carried out, and also ad hoc repairs for sudden damages or breakages. As a landlord, you are not only responsible for having those done on time, but you also need to cough up the money for those expenses, which shaves off a bit from the rental income you receive. The effort put into maintenance work can’t be substituted, but as per the depreciation rules for rental property, you can cushion some of the financial impacts.
Rental Property Depreciation Report Offers Way Out

When you are earning rental income from a property you own, there are several expenses which can actually help you reduce your tax outlay. Those expenses can be made part of your rental property depreciation schedule and then those amounts can be deducted from your taxable income, thereby reducing your tax liabilities. Let us take a look at some of these rules which can help you at tax time.
One of the biggest expenses that can be added to your rental property depreciation report is what you spend on the upkeep and maintenance of your property. For example, the fees paid to carpenters or plumbers for repairs, or gardeners for regular maintenance, and also painters or carpet layers for occasional work. These could be either in the form of one time fees or even regular wages. In order to be able to claim a deduction on these expenses, you need to collect and submit each service providers tax identification number as well. If the amount paid to them is above a certain amount, you might also need to submit additional details in specified forms. If you consult a good firm like Deppro Victoria, they would help you with all the relevant rules and also provide the required forms that need to be filled up.
Apart from the money paid to service providers, some other expenses are also useful in reducing your tax burden. One big area of expense is the money paid for utilities or taxes, which can often be set off against taxes, depending on where the property is. Costs incurred on travel or entertainment of employees can also be listed in the tax deduction charter. For example, an employee gets together can be listed under the head of such expenses. Depending on which location you pay tax at, all employees or business associate expenses might not be deductible, and you need to find out your local rules before you file your tax returns.
The important thing to note is that tax laws have several provisions to cushion the tax impact on landlords, but may get overlooked due to lack of knowledge. If you do your research well or employ a good consultant, you can reduce your tax substantially.

How Much Will Your Depreciation Schedule Cost?

Every asset you own goes down in value over a period of time. In real terms, this is because of wear and tear due to regular usage. In accounting and financial terms, this reduction in value every year is expressed as a percentage. The concept is broadly similar across the world. But the rules, implementation, and even percentages might vary a bit according to the country and asset category. For this post, let us consider the impact of depreciation on an investment property in Australia. Let us also consider what could be the likely costs involved in calculating Australian tax depreciation on the property.

Tax Implications of Property Depreciation in Australia

The ATO (Australian Taxation Office) has laid down very clear rules regarding depreciation of the value of an investment property. The annual reduction in the value of fixed as well as removable assets of a property would need to be listed in a depreciation schedule. According to this schedule, a property owner can claim deductions on the tax payable by him or her. That is why it is very important to get the schedule prepared by a qualified and experienced professional. Most good consulting companies have experienced quantity surveyors on their rolls. They take accurate measurements and make the schedule exactly as per the recommendations of the ATO. This ensures that a property owned is not taxed more or less than he should be.

Cost Implications of Preparing a Depreciation Schedule

Like everything else in life, there are several ways of going about this. One can even choose to make the schedule on one’s own. This way the depreciation for property would be calculated at zero cost. But this would run the risk of a major error. The error could turn out to be costly in the future. The second option is to employ a company which promises to charge less. You could get the job done cheaply, but there would be a catch. There would be several important aspects not covered under the charges. These would either reduce your tax savings later or cost you more in additional charges. Either way, you end up paying more than you save. So what is the best option?

How Much Will a Good Depreciation Schedule Cost?

The best way of deciding or understanding this is to first list down everything which you necessarily need. For example, do you need an exclusive report for your property? Or would you be okay with pooling the cost with other owners of the contiguous property? Should your report contain inputs from other relevant parties? Would the formal inspection report be part of your tax submission? Based on these points, it could cost as low as $175 plus GST. And it might go up to $1000 plus GST for a comprehensive report.

Conclusion:

A good Deppro depreciation report might cost you more than other cheaper alternatives, but it will help you save more in the long run. You will not only pay less tax, but you will also be protected from needless taxation that is deductible legally.

Why the Depreciation Shake-up Gives Off-the-plan Investors an Edge at Tax Time

The year 2017 saw some changes brought about in the rules governing depreciation on investment property in Australia. The attractive option for claiming tax deductions due to the depreciation of the property value saw a cutoff date being applied – 9th May 2017. People who bought a second-hand property after date could no longer claim the deductions, as per the ATO regulations.
An Overview of Depreciation

We know that any asset undergoes wear and tear as it continues to be used. Accounting principles look at this reduction as a standard percentage of the value which gets reduced from the value of the asset. Under tax laws, this depreciation amount could be set off as a deduction from the tax payable. This would make a substantial change in the cash flows of a property owner. Based on the cost of the property, maintenance costs, reduction in value, and the reduction in tax payable, the depreciation could impact the net yield on investment property.
The New Tax Law

From May 9th onwards in the year 2017, second-hand property purchased would not attract the tax deduction. The only two categories allowable were new assets added to older homes and assets in new homes would allow admissible deductions. Those who were off this new plan could continue to claim under old rules. Also, capital works investments and fixed items added could still be claimed. But any assets that came along with the property went out of the purview of the deduction.
The Better Option between New and Second Hand

Because of this change, property owners needed to rethink their investment strategy. Back of the envelop calculations seem to present a clear picture. It was seen that a new property could work out much cheaper than investing in an older property of the same value. The detailed working of the investment property depreciation schedule ATO would provide a similar answer. What this does is to take the tax benefits out of the equation. So an investor should look at the cost-benefit analysis of the property only. Tax deduction benefits would cease to make a difference to the numbers. So how do the new tax rules affect the comparison between old and new? A property purchased in 2016 might turn out to be of similar value to a brand new property purchased in 2018. This needs investors to recalibrate their calculations carefully and in advance.
Conclusion:

In order to get the best property investment returns, an investor would need to calculate carefully. The best way is to leave it to the professionals. Consultants like Deppro could depute their qualified quantity surveyors to get the math right. They would set up the depreciation schedule according to the purchase date. The ATO has detailed lists of what can be claimed and for how much. These quantity surveyors would work out the numbers in accordance with these ATO guidelines. The amount that such a report would cost could ensure savings of higher amount if the calculations are done by a professional.

7 Questions You Should Ask Your Quantity Surveyor

Before that time of year rolls around again, when you have to file your tax return, you need to begin preparing your documents. While the income and expenditure are fairly straightforward, most people get stuck while preparing their tax depreciation schedules. That is why most people lean on professional tax consultants for this. If you own an investment property or a rental property, you may also require the help of tax depreciation surveyors who can make an assessment of your property and then prepare the submission schedule. Before you hire the services of such a surveyor, there are some important things which you should ask your quantity surveyor.

1. Do You Have Certified People Or Will You Outsource?

The survey work for property depreciation schedules can’t be done by just anyone; only certified and qualified surveyors can do it. But many tax consulting firms outsource the work of surveying to smaller firms. In such cases, you run the risk of having the survey done by someone who isn’t certified. Therefore, it is vital that you check with the firm as to whether they outsource any of their work.

2. Do You Have Insurance Coverage?

Surveying involves a whole lot of measuring at your property, for which surveyors need to often climb ladders or onto roofs. If they suffer a fall or any other kind of mishap, it would pose a major issue. That is why it is advised that you only hire firms who have insurance coverage.

3. What Are The Services You Provide?

The quantity surveyor tax depreciation only do the survey and measurements. After that their would need to prepare your returns as well. That is why you need to find out whether the firm you are employing only does surveys or can they provide end to end services.

4. Do You Have Any Questions For Me?

Every property has its own special features and would be differently treated by tax laws. Before the surveyor begins his or her work, you need to show them around and ask questions about your property. The answers to those questions and the surveyor’s own questions to you would tell you how well the survey would be done.

5. What Elements Would Be Included In The Depreciation Report?

Like we previously mentioned, a quantity survey is the start of your tax declaration and claims process. The Deppro quantity surveyors would finish their job and hand it over to their colleagues who would complete the rest of the process. You need to know from the surveyor what elements he or she will include in the report because that would determine the tax deduction amount.

6. What Categories of Properties Do You Handle?

It is important to learn what kind of properties their firm specialises in. There are firms which would be doing the surveys for commercial or industrial properties only. So, they might not have the required expertise regarding residential properties. It is preferable to work with someone who knows their stuff.

7. What Is Your Fee Structure?

Last but not the least; you need to know how the surveyor would charge their fees. There are some who charge a flat fee, while there are others who charge as per the square feet area of the property. There could be some others who charge a percentage of the total amount in the depreciation schedule.

Conclusion:

Asking the above questions will not only help you know how professional your quantity surveyor is, but it will also help you learn some extra information about your own property.   If you think there should be some more questions which are important to ask your quantity surveyor, please let us know so that we can share those with our readers and customers in our next post.

Depreciation Schedules – By Independent Property Inspectors

Depreciation refers to the decline in value of a commodity or an asset. In terms of tax depreciation schedules, the term corresponds to a tax deduction or compensation for wear and tear caused to a piece of property. Rented houses, that constitute the property of taxpayers, have a tendency of suffering damages in the course of time and thus the term depreciation comes into action.

Depending on the value of a property, the property depreciation schedule of a piece of property can amount to a significant amount of money for a property owner. Whether a property is new or old, the compensation for its renovation does amount to a certain value. Keeping this in mind, a property owner must try their best to do everything to lay a claim on the tax deduction of mending or renovation.

How Does a Tax Depreciation Schedule Benefit a Property Owner?

A tax depreciation schedule is prepared by a quantity surveyor and it consists of all the components that are eligible for depreciation. The amount of money you invest for the improvement of property comes under tax exemption. That is to say, you will not be taxed for the amount of money that you invest in enhancing its value.

An important thing to bear in mind is that it is easier said than done to meet the requirements of ATO. Hiring a qualified quantifier surveyor is a good idea to make the most of an investment property depreciation schedule ATO. Though you can consider approaching an accountant, a quantity surveyor would be able to provide you with an accurate calculation.

What Amount of Depreciation Can You Expect From Your Property?

ATO tax depreciation schedule is more complicated than what it looks like on the surface. One needs to get to the bottom of the facts in order to gain a proper understanding of the value of tax depreciation for a piece of property.

An important thing to remember is that the value of depreciation depends on the age of a property. Thus, it can vary from one property to the other. Further, your property will be eligible for recovery of compensation only if you have built it after 1985.

Tax depreciation in connection with a property does not cover the land on which it stands. Even if your property was built before 1985, you can receive depreciation on all Plant and Articles.

Final Thoughts:

It is important to conduct the depreciation of a property due to a variety of reasons. Firstly, it necessitates a property owner to carry out a thorough inspection of their property. This can help an owner identify all the existing problems in their asset.

Further, it also encourages an owner to promote the value of a property with the assurance that the costs for improvement will not come under the slab of taxation. A piece of property which undergoes maintenance and improvement from time to time remains in proper shape for long-term use.