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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.

Depreciation and Your Investment Property

When a person buys an investment property, the intention is to generate an additional revenue stream from the rentals. But the process of looking for a good tenant and setting them up is not that easy. Then there is the issue of regular or ad hoc maintenance expenses, which eat away at the rental income. On top of that, there is the matter of paying taxes on the property and its income.

The Australian tax rules have made it possible for homeowners to get some relief from the taxes they need to pay for their property and its income. The rules regarding depreciation residential rental property provide for a reduction on tax on account of the depreciation of the value of the property.

There are two ways in which the deduction can be calculated. It could be either on the capital works or on plant and equipment. It is required that a complete tax depreciation schedule for rental property is created by the owner. This is a specialized job for which experts need to be brought in.

There are several companies which offer this kind of service. They employ qualified quantity surveyors who are trained to create this kind of report. It requires detailed measurements and counting of each and every small and big element on the property. Based on those data points, the complete rental property depreciation report is prepared. This is then used in and submitted along with the tax returns of the property owner.

There are some things to be kept in mind when claiming tax depreciation on investment properties. Here are some of them:

  1. There are cutoff dates for properties laid down. For commercial properties, the commencement date is 20th of July, 1982. For residential properties, the date is 15th of September 1987.
  2. For plant and equipment assets, the effective lives of each element would be taken into consideration. ATO has laid down a detailed list for this, and the tax returns would be filed accordingly.
  3. The individual effective life would also depend on the type of property where the plant and equipment asset has been used.
  4. House owners need to keep in mind that the depreciation rules would only apply if the property is not being occupied by the owners. Therefore, it has to be a rental or investment property for the depreciation rules to be allowable.
  5. The above rule can be relaxed if the property is purchased and owned by a trust or a company instead of an individual. In such cases, the owner (individual) can move in as a tenant of the trust and claim depreciation.

There are several good companies who can help you create the depreciation report for your property in line with the current regulations. They have teams of qualified technical specialists who would help prepare the depreciation reports and file the tax returns accurately.

How is Depreciation Applied Following Natural Disasters?

Natural disasters are one of the leading causes of damage to properties. Situations involving such disasters often necessitate owners to substitute various assets. At times, depending on the degree of damage, they may also feel the need to rebuild their properties.

Though it can be a challenging task for both owners and tenants alike to deal with such a situation, there are ways to mend it. As it can be expensive, owners consider linking it to tax depreciation schedules. If you do not know much about depreciation, here are the things you need to know to maintain depreciation deductions for damaged properties:

Assessment and Depreciation of Disaster-Stricken Properties:

According to Australian tax rules, it is important on the part of an owner to submit a report on a damaged property to claim the expenses. Regardless of whether you repair, replace or improve an asset, you need to submit the property report to the concerned authorities.

Furthermore, the consequences may differ slightly, based on whether the property in question is an insured property or an uninsured one. Depending on whether or not the inspection of a property has been done, there can be two set of possibilities for an owner which are as follows:

A Quantity Surveyor Has Inspected the Property:

In this scenario, the owner can make adjustments to the original report and apply it without spending a huge amount of money. This also saves a lot of time and hassle.

A Quantity Surveyor Has Not Inspected the Property:

This can be a little tricky to handle. In this case, a property owner needs to contact a quantity surveyor for a thorough inspection of the property as soon as possible. The rationale behind it is to prepare a property report in a timely manner. When one fails to complete this quickly, it can land one into various complicated circumstances.

If you repair an asset, you can claim the deduction of the expense for it, irrespective of whether you have insured your property. The capital allowance values and the individual depreciable asset will need adjustments for the replacement of insured properties. For uninsured properties, the residual value of the replaced asset will cease to exist and forecasting of depreciation of new asset will follow.

What Should An Owner Do to Get the Right Depreciation Rate for Their Property?

The extent of ATO depreciation rates varies from case to case, depending on the kind of damage from a natural disaster.
In order to understand the ATO guidelines, it is important to gain an in-depth knowledge of various aspects related to filing the Australian tax return. You need to reach out to an expert for information about the scope of maximizing the future, present of previous depreciation claims.

Conclusion:

The preparation of the property report according to the ATO guidelines is your best bet to claim the depreciation expenses in your tax return with success. Unless you are an expert in this field, you should avoid taking it on your own. It makes a lot of sense to assign the task to a qualified professional with years of experience in this connection. This will help you to be on the safe side and prevent the possibility of getting into any legal issue.

How Does Depreciation Add Value to Your Investment?

Every investor invests their wealth into a property to earn profitable returns and this is a story prevalent since years. However, this becomes a little tricky with older properties such as an older building. Due to wear and tear from time to time, its value diminishes over time. Wear and tear of a property is a constraint that is considered at all times when you plan to sell out a property. Depreciation tax benefit serves as one of the valuable means to promote the value of commercial or residential property for investors.

If you have invested in a property of late, depreciation can help you to not only retain its value but also get you more out of it. By lowering the overall tax liability, you can save hundreds to thousands of dollars every year on your taxes.

Read on to know more about how you can get more out of tax depreciation investment property.

Tax Depreciation Adds Value to an Existing Building or Structure:

It is important to bear in mind that tax depreciation does not enhance the value of land. It maximizes the value of a property, especially an old building which is subject to wear and tear. Because it may necessitate renovation or maintenance at the subsequent stages, things can get expensive on the part of an investor. Tax depreciation on such properties can help you keep things under your control in terms of charges involved in repairs or renovation.

Tax Depreciation Does Not Involve Any Upfront Payment

Being a noncash deduction, depreciation does not necessitate the payment of upfront charges. However, to overcome various legal hurdles, it is imperative that you gain an understanding of requirements related to depreciation. This will provide you with the right idea to improve the cash flow of your investment.

Tax Depreciation Helps an Investor Conceal a Cash-Positive Rental:

Depreciation has an interesting spin-off. To elude the possibility of paying an extra amount of money, you can use the tricks of the trade linked to the Australian tax depreciation. By following this simple rule, you can make cash-positive rental look like a loss on paper. Of course, you need to reach out to the right consultant to take advantage of this feature.

What Should You Do to Reap the Benefits of Depreciation?

If you wish to enjoy the positives of depreciation on investment property ATO, the most important thing you need to do is follow the rules. This will help you keep abreast with the ways in which you can benefit from depreciation in the best possible manner.

Because it is easier said than done to deal with the ins and outs or the technical details of the rules related to depreciation, you should consider hiring a professional. Think about consulting an accountant to ensure that your practices are in line with the rules. This is the sure-fire way to benefit from depreciation as an investor.

How You Can Benefit from a Depreciation Schedule

Depreciation is an amount which is an acquired cost upon the asset’s original value corresponding to the service life of the asset. Over the years for which a company uses a machine, it becomes next to impossible to spend on a single asset for one long period. Therefore, it is essential to depreciate the allocation of the budget over the depreciation expense. It is one of the most under-employed rights which are available to property investors.

Tax depreciation schedules differ from other deductions that relate to property investment. It is a deduction that you can claim without much costs in a year. In general, you can pay a one-off fee and receive a 40-year depreciation schedule. Your analyst can use it each year to overcome your taxable income legitimately.

Advantages of Tax Depreciation Schedule

You can break a depreciation schedule into two divisions. One is the capital works and plants, and the other one is the article. The capital works continue to be the productive structure cost, any improvement or addition and frequently permanent assets that form an element of the construction or enclosing buildings.

These assets usually depreciate beyond 40 years and further form the ‘backbone’ of the depreciation statement. The factory & articles, called as plant and equipment, are the movable assets such as glass furnishings, devices, carpeting, exhaust coolers, fire bells, etc. These assets decrease at varying proportions based on the kind of asset and their shelf life as decided by the depreciation on investment property ATO. The shelf life of these valuable items falls between 5 and 15 years. This is the principal reason for the fall of more notable depreciation claims in the early years.

What are Tax Depreciation Schedules For?

Depreciation schedules can be altered to maximise certain advantages under the Australian tax law. These include the direct write-offs, low-value pooling and in taking the support of various partners and raised thresholds. After the inspection is complete and the data is accumulated under one file, it is given to the accountant. The information is provided in a compatible forma with that of the software. It not only eases off the workload, but also leads to certain benefits that exceed the expectations of investors in the long run.

Utilising a depreciation rate also encourages businesses to record assets at their net book cost. Organisations initially take into account the secured assets in corresponding to their original prices, along with an analysis of the wear and tear over time. As a matter of fact, the value of the asset usually declines over time, and that’s the basic depreciation schedule one needs to know.

Therefore, firms must calculate the tax depreciation investment property with the net cost price and deduct it from the accumulated depreciation cost.

You can highly benefit from the depreciation schedule and make sure you can get the maximum claims. Get hold of expert property depreciation consultants for convenient services.

Everything You Need to Know about Holiday Rentals Depreciation

Holiday rentals depreciation is not claimed as often as we’d like it to be. Investors often miss this deduction and it is surprising how strongly the statistics depict the lack thereof. This could be due to numerous reasons despite the considerable benefits of tax depreciation deductions.

In actuality, those who own holiday rentals have the ability or entitlement to make a claim against depreciation. So, they can easily be claiming depreciation on property as well as furniture which is in the ambit of the rent period.

The whopping statistics show that people owing holiday rentals can accrue a great deal of profit or savings by this. All they need to do is have a tax depreciation plan and they can save a considerable amount.

What Can You Do?
As a smart rental property owner, you can draw up your tax schedule of depreciation to be entitled for the claims. Or you can even have an estimate drawn at how much claim you’ll receive so that you have a better idea.

Being at the top of your game with your taxes can help you be an optimal business owner.

Wrapping-Up:

Being the owner of your investment property already helps you in availing the best of your business. However, being smarter and more aware along the way is the game changer. So the most optimal way to ensure maximization of profits is preparing your depreciation schedule.

All you need to do is reach out to Deppro and we’ll take care of everything. From preparing to reviewing your depreciation schedule for tax, we’ll do it all. We will even give you a review of your entitled amount of deductions.

How to Claim Depreciation on Investment Property: Factors to Consider

If you are a property investor, tax time could be little confusing to you. If you are looking for the right advice to understand how to Claim Depreciation on Investment Property to reduce your tax liability reasonably, here are some tips to help you:

1. Figure Out What You Claim:

A variety of expense-related deductions are entitled to claim by investors including repairs, interest, fees, depreciation, and maintenance. A property depreciation report is a significant aspect to consider for the depreciation for tax purposes.

Typical depreciation schedules for rental property maintain all the deductions pertaining to capital works such as floors, roof, wall, windows, doors, etc inclusive of removable plant & equipment that belong to such a building. It also includes various appliances, blinds, carpets, etc.

2. Depreciation Rules:

The depreciation for tax purposes is available for the legal owners. In case of hire and purchase agreements, notional sales of goods are considered and the legal owner can claim the deduction. Similarly, in the case of joint ownership, no individual partner can claim the entire depreciation.

These deductions are limited to the extent to which you use your rental property for generating income. If you are using the 50% of the property, you cannot claim 100% depreciation for that particular year.

3. Age of the Property:

Most of the investors mistakenly believe that their property is too old to claim depreciation benefits. The age of a property does significantly impact on the capital work deductions but the depreciation claimed on the plant & equipment is regardless of the property’s age and can save a considerable tax amount.

4.  Work From Home Also Allows a Depreciation Deduction:

Are you operating from home? If yes, you are also entitled to claim for the portion of property including the involved plant & equipment for the purpose of depreciation claims. A quantity surveyor can guide you in differentiating all the items which can be included in property depreciation report.

5. Depreciation for Tax Purposes Can Be Claimed for Partial Financial Years:

Even if you have purchased any rental property towards the end of the financial year, you can include it in the property depreciation report on a partial basis. If a large sum of money is involved in any such investment, it will lead to boost your cash flow significantly.

6. Crosscheck Your Tax Return:

If you are not acquiring the adequate knowledge on how to Claim Depreciation on Investment Property, you are prone to make errors pertaining to asset classification and calculation of depreciation. The plant & equipment depreciation rate is higher than capital works. So, if you maintain depreciation schedules for rental property at the same rate for both the classifications, you are tending to lose a significant depreciation claim.

7. Consider a Qualified Quantity Surveyor:

The selected professional specializes in helping with depreciation schedules for rental property is considered as the Qualified Quantity Surveyor under Tax Ruling 97/25. If you are not sure about how to Claim Depreciation on Investment Property, you can refer such professionals to seek an extended guidance. You can check with your accountant for any such referral to find an appropriate surveyor. Remember, not all the quantity surveyor possess specialization in building depreciation.

Conclusion:

It is important to maximize your depreciation claims in order to ensure a higher return on investment on your rental property. You can also be assured a money-back guarantee on the services offered by the reputed quantity surveyor. But, most of these professionals also charge a premium service fee.

If you are an amateur investor, it is recommended to seek an experienced quantity surveyor to maintain your depreciation schedules for rental property more accurately and efficiently.

A Beginners Guide to Rental Property Depreciation: All you should know!

In order to minimize your tax liability, claiming the depreciation on a rental property is imperative. It also significantly improves your cash flow. It is important to calculate precisely on the amount of depreciation tax deduction on rental property. While a little depreciation will enhance your tax liability, any excessive claim can cover you under the preview of ‘Fraud’.

Here is a comprehensive beginner’s guide to rental Property depreciation:

Depreciation – an Overview:

Depreciation technically refers to the decrease in the value of an asset over a period of time. Any tangible asset has a value which declines substantially over its useful life. The owner of the assets can deduct the cost of these tangible assets as an expense to claim the tax deduction.

Depreciation is a non-cash transaction which helps in improving the cash flows by the way of reducing the tax liability. Any rental property generates a certain amount of income which is liable to tax. By claiming the depreciation tax deduction on rental property, this liability can be reduced.

For investment property depreciation, there are two broad asset classifications:

  • Plant & Equipment: Any item used in a building including dishwashers, light fittings, curtains, carpets etc. But the garden plants are not covered in this category.
  • Building: The cost involved in the construction of the building for concrete or brickwork.

ATO Tax Depreciation Schedule – An Overview:

A Depreciation report needs to be maintained in order to claim a depreciation tax deduction on rental property. Tax depreciation reports state the entire claimable amount under depreciation to be considered for tax purposes. ATO only allows for a backdate depreciation of up to 2 years.

Hence, it is recommended to start claiming depreciation at the earliest possible time. It is worth noting that this 2-year limit can be contented by a savvy accountant and on the discretion of an ATO commissioner.

To include the rental depreciation:

  • Rental money must be included under the income.
  • Any insurance payout on the rental property must also be included under the rental income
  • Any booking or letting fee should also be considered as rental income.
  • Any reimbursement received for deductible expenditure to be included under the rental income.
  • In the case of co-tenants, depreciation can be claimed only to the extent of legal interest in the property.

Things to Know About Depreciation Tax Deduction on Rental Property:

In order to claim a correct depreciation tax deduction, you must know the following details:

Date of the Beginning of Construction:

When the construction of the property begins, the depreciation rate percentages can be counted from the effect. If the property is constructed in different time frames, the depreciation can be claimed according to different times.

The percentage of depreciation approves the time for which depreciation can be claimed. Say, if you are claiming a depreciation of 5%, you can claim it for the subsequent 20 years. Similarly, if you claim depreciation for 4%, you can claim it for 25 years.

Date of the End of Construction:

The depreciation tax deduction on rental property can be claimed after considering the date of the end of depreciation. This is a very important date to be known and considered for the depreciation deduction.

Cost of Construction Involved:

The actual cost of construction exclusive of the cost of property purchased as well as the value of the property is considered as the cost of construction liable for a rental property tax deduction. It can also be estimated, in case the owner is not sure about such cost. Such estimation can be done on the basis of the type of construction say residential house or apartment or any commercial property as well as the party involved in such construction i.e. owner, builder or any developer.

With this beginners guide to rental property depreciation, you can suitably save a considerable amount on your tax liability.

Tips to Get More Out Of Your Depreciation Claim

It’s everyone’s dream to own their very own property. It not only makes you feel good, but it brings rental or investment income too. But like everything, the value of a property decreases over time. This has nothing to do with the market value or the cost of raw materials. It is an economic principle called depreciation. Every year the components that make up your property become less valuable. Australian tax laws lay down a process for claiming depreciation on a rental property. This ensures that you are entitled to tax deductions. The extent of those deductions depends on the amount of depreciation.

Steps Involved in Claiming Depreciation on a Rental Property

The first thing to do is to assess the property. Every single asset on the property needs to be properly evaluated. You can use the Deppro contact number to get in touch with a reputable company for your depreciation claims. They will divide your assets into the correct categories and then they will allocate the correct depreciation rates as per ATO rules. Based on this, your depreciation schedule will be prepared, thus, the correct tax return can be filed.

The Correct Tax Returns

You might have often wondered can you claim depreciation on a rental property? The answer is yes. Depreciation can be claimed during filing tax returns. The process for claiming depreciation on a rental property is quite simple. But it might become tedious if you do it yourself. A good company with good quantity surveyors can make the process much easier. A team of expert quantity surveyors can make the task of claiming depreciation on a rental property extremely simple.