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Ways to Cut Your Tax Bills through Depreciation

You must know that the more you use an item, the lower it becomes in value. You have probably realised, that when you try to sell your used car after one year, you would get a lower value even if it was in very good condition. This universal accounting is called depreciation. In case you own a rental property in Australia, this rule also applies to your property. But there is a flip side to this dark cloud. You can claim tax deductions on the annual depreciation on your property. In case you are not completely aware of the implications of this, read on. Like most tax rules, the rules pertaining to depreciation also have lots of fine print. It is, therefore, recommended that you get the help of professionals. You must hire the services of a tax accountant along with trained Deppro quantity surveyors. Let us discuss a few useful things you can keep in mind.

Assets on Which Depreciation is Permitted

For a rental property that you own, there are two ways of claiming depreciation. The first is on the fixed parts of the property, like the building itself. It would also include all permanent assets built into the house. The second category is referred to as plant and equipment. This includes all additional fittings and fixtures you have installed in your house. Some examples are: upholstery, furniture, electrical appliances, and even ventilation systems.

Here are three easy tips which can help you maximise the tax gains on depreciation:

Tip#1: Add on as Many Fixtures as Possible

Let us say you build an indoor swimming pool. While it would cost you money to build and then maintain, it has a tax benefit as well. This is because it gets added to the plant and machinery segment of your tax depreciation report. The more things you add, the greater are your benefits in two ways. First, these fixtures will provide a better quality of life. Second, you will be able to claim higher tax benefits.

Tip#2: Keep an Eye on Asset Value

When we mentioned plant and machinery above, it had nuances. The ATO recommends different depreciation rates for a tax return Australia. Often, the different slabs are based on the cost of the asset. So a gadget that costs less than $500 might attract depreciation at a different rate compared to the same gadget priced higher than $500. Do consult your tax accountant before you purchase your house fittings.

Tip#3: Benefit from Residual Value Write Off

Property owners often plan on renovating older properties they own. If you are also making similar plans, make sure you have a chat with your tax consultant. The reason we say this, is that it is very likely that you might be removing some old fittings. The written-off value of those fittings could be claimed the same year under depreciation.

Conclusion:

Most property owners have now realised the many benefits of claiming tax deductions due to property depreciation. But simply knowing the broad guidelines might not be enough. You should be on the lookout for legitimate ways to derive the maximum benefit.

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.

 

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.

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.