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.

 

Getting Help with Investment Property Depreciation

Quantity surveyors play a crucial role while dealing with investment property depreciation schedule. Many people may find it confusing when they have to deal with something that includes the term depreciation. They assume that depreciation means a decline in value so they link it to something very negative. But, when it comes to an investment property, depreciation will actually be in your favour as long as you tread the path cautiously. So, let’s just say, you have an old property in your possession and you are exploring ways to make optimum use of it. In such a scenario, you may either repair or renovate the old property or just resell it. Here you must know that renovating your old property can yield you great benefit as a result of tax building depreciation.

Here are some important factors:

1) Many people sell their used property and remain unaware that they can apply for property tax depreciation against taxable income. The tax claim can be made in two ways. First one is plant and equipment. It covers taxable objects used inside the property. These objects may include air conditioner, laundry machine or any other machinery. However, deductions for the plant and equipment items will be applicable if you purchased the property before May 9, 2017. Tax claims can be made through building allowance. It covers all the construction expenditure for those properties constructed before 1985.

2) In order to apply for tax entitlements, you must hire a quantity surveyor who will carry out all the work for you. The work of a quantity surveyor mainly includes organising the depreciation schedule which can validate the tax deductions. The expert quantity surveyor will prepare the property tax depreciation schedule. As you cannot avoid payment of repairs and renovations on an old property, you can get most of the cost back by paying less tax.

3) A quantity surveyor will help you in evaluating your property and prepare a depreciation report. The report will be presented at the tax office for reference. The expert quantity surveyor will make a big difference in how big or small tax benefit you will receive. If the surveyor prepares a comprehensive report covering all minute details, you may receive a great tax benefit. The expert quantity surveyor can effectively organise a depreciation schedule for investment property.

4) The quantity surveyor will carry out a physical inspection of the property. It will allow him to record all of the legal entitlements in the report. They ensure that the tax depreciation report includes all depreciable assets so that they cost it accurately.

Conclusion:

So, it is important to hire an expert quantity surveyor who has the right legal information and technical expertise. All Quantity Surveyors should follow the tax laws and other ATO guidelines. You can then work with the surveyor on the depreciation schedule and report. The expert surveyors will assess the depreciation rates for all of the assets. It will help them determine if you are permitted to a write-off rate. So hire the best quantity surveyor who can estimate tax returns for you from Deppro, Australia.

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.

Best Reasons to Invest in Commercial Property

Most people dream of owning their own home. Those who can cross that first hurdle, often go on to their second or third home. Obviously, they do not plan to stay in all of them by turns. The subsequent purchases are for investment purposes only. They give the owner the option of renting or selling it outright for a profit. Additionally, whether you rent or sell, it also gives an option of claiming depreciation on property. There is another option that is popular with investors – commercial property. In this post, we are going to try to help you understand the implications of commercial property investment.

Tax Benefits

The first thing any investor looks at is whether a particular investment brings any relief from tax. A commercial investment property offers tax deductions in two ways. The first is on the capital works expenses made on immovable parts of the property. The second is the depreciation due to plant and equipment. This refers to additional fixtures and fittings that you have spent money on. If you can prepare an accurate and detailed depreciation schedule with the help of a professional, you can indeed save a lot of tax.

Robust Yields

The primary reason for any investment is to sell at a price higher than the purchase price. The property tax depreciation mentioned above is only a bonus. But it is not the most important benefit of investing in a commercial property. The most important benefit is the better returns it usually provides on resale. This is especially when you compare with the average returns of investing on a residential property. This is the primary reason why discerning real estate investors always prefer to deal in commercial properties.

Low Initial Investment

We know that the rental income from a commercial property would be much higher than a residential property. In spite of this, the initial cost of a commercial property is much less. This allows you to begin investing without a very large corpus.

Conclusion:

The purpose of this Deppro review is not to compare the relative merits of investing in a commercial property vs. residential property. We only seek to highlight some of the best reasons to invest in commercial property because many of them are less known to investors. If you are an investor, then you must surely keep commercial properties as part of your portfolio.

How to Claim Depreciation on Previous Owners’ Renovations

Many investors know that they are eligible to claim depreciation of building works they have carried out to a property. However, some don’t know that they can also claim depreciation of renovations done by former owners of the property. The claimable depreciation will depend on the property purchase date and extent of renovation took place. To claim depreciation, you need to consider a few factors like ATO depreciation rates, 2017 budget, etc. The 2017 budget is important as your claims depend on whether you purchased the property before or after the budget.

What if You Have Purchased a Property Before 2017 Budget?

Things won’t be complicated if you happened to purchase the property before the 2017 crucial budget. In such a scenario, you are eligible to make claims under Division 43 and Division 40 of the Income Tax Assessment Act. Division 43 covers the capital works undertaken by the former owner to the concerned property. It may also include all the renovation works such as a bathroom, kitchen restoration, building extensions, etc. It will also include any work carried out for building structure improvement. In other words, you can claim renovation work on the roof or walls done by the previous owner. You can also consult property depreciation consultants to make the process easier.

What if You Have Purchased a Property After 2017 Budget?

In this scenario, you are likely to face some complications. You will have to check the amount of renovation that took place or whether the previous owner did any renovation. Budget 2017 introduced the term “new residential premises”. You will get more details of the new residential premises in Goods and Services Tax or GST Act.

Importance of GST

You will come across the term “new residential premises” under section 40 to 75 of the GST Act. It means that the premises which have not been sold or rented out as a residential property prior to your purchase won’t cause any problems as the term covers new properties.

The Act further elaborates such premises as those that underwent “substantial renovation”. Such renovations mean removal or replacement of the entire building. And, installation of a new bathroom or kitchen won’t get inclusion under the substantial renovation.

How It Will Impact You?

If your investment property does not come into the category of substantial renovations, you can’t claim Division 40 depreciation. A new tool on its own is not sufficient to form a substantial renovation.

If the building underwent sufficient renovation to fall in the category of “new residential premises”, you can claim for Division 43 and Divison 40 work. In such a situation, a quantity surveyor will check the amount of renovation work done on the building. They will create a timeline of the building and create a house depreciation report. The report will cover the renovation work, cost, and extent of the renovation. You can use the report to check if your building comes in the category of “new residential premises” or not.

Conclusion:

It’s important for you to find out the exact date of your property construction. This will help you find out what earlier renovations you can claim depreciation. You can also seek the help of a quantity surveyor to develop a detailed report of property depreciation tax deduction

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.

How Depreciation Works for a New Investment Property

When you buy or own an investment property, you are responsible for the maintenance and upkeep. But the property also becomes part of your assets, and therefore it gets linked to your tax liability, and therefore you should consider it as part of your investment property calculator.

What is Depreciation?

As per the principles of accounting, any asset loses value with time, and every year its value decreases, this is called depreciation. We see this most commonly when the value of an automobile is calculated by the insurance company every year before calculating the annual premium to be paid for its insurance. The value of the car is reduced every year, and the new premium is calculated as a percentage of this reduced value, not on the basis of its purchase price.

Benefits of Depreciation

The ATO allows property owners to get the benefits of the depreciation that their property suffers. This depreciation on investment property ATO can actually be claimed as a tax deduction while submitting the tax returns. For this, a process has been laid down by ATO, which requires the homeowner to employ the services of qualified professionals.

The Two Types of Calculating Property Depreciation

A building can have two aspects of the calculation of its tax depreciation investment property.

  • The first mode of the calculation of depreciation is on capital works. It includes all the expenses made on the construction of the building. This depreciation can be claimed over a period of forty years. This period has been decided based on the average expected lifespan of a newly constructed investment property.
  • The second mode of property depreciation is based on the value of the assets added to the building. This would include things like upholstery, furniture, electrical, and utility gadgets, etc. The list provided by ATO also lists the expected lifespan of each item. For example, a carpet is expected to last 10 years, while a kitchen stove can be expected to last two years more.

A Brief Process for Claiming Property Depreciation

The tax declaration would need to contain a detailed schedule for you to be able to claim both the types of depreciation listed above. A certified quantity surveyor would be required. This is because actual measurements and enumeration of every small and big component would be needed. Once the list is ready, the calculations can begin.

Based on the age of each component, and the rate laid down by the ATO, the total depreciation amount is calculated. Once the amount is final, then the amount of tax deduction applicable can be calculated.

Conclusion:

Many homeowners are not aware of the depreciation rules. If these rules are properly utilized, a homeowner won’t need to pay more tax than needed. A proper tax depreciation schedule for rental property can also prevent tax deduction being claimed twice for the same component. All that is needed is to utilize the services of a good consultant. The consulting company and its team of quantity surveyors will help you claim the right tax breaks.

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.