What is Tax Depreciation?

Buildings and their contents that are used for income producing purposes are eligible to be depreciated. Similar to capital assets owned and used for income producing purposes, such as machinery, which can be depreciated over time.

The Australian Taxation Office (ATO) allows owners of income producing properties to claim this depreciation as a deduction. Unlike other deductions, such as interest on a loan where you need to outlay money in order to make a claim, depreciation is considered a non-cash tax deduction.

All types of income producing properties have substantial taxation benefits. Both new and old properties will attract some depreciation benefit that the investor is able to claim to reduce their tax liability. A common myth is that older properties will attract no claim – which is not true. It is worth making an enquiry about any property, regardless of its age.

When an investor hasn't been claiming deductions for tax depreciation, previous financial years' tax returns can be amended. The ATO allows for the previous two years returns to be amended, and in some instances the ATO may have to pay you money back.

What is in a Depreciation Schedule?

To ensure every investor's claim is maximised, BMT utilise a comprehensive depreciation schedule. For eighteen years BMT have continually refined the reporting process and system to offer a report second to none.

Below is a list of what to expect in a BMT Tax Depreciation Schedule:

  • A glossary of terms simplifies the terminology used for easy understanding.
  • A one page overview explains the total deductions for each depreciation method.
  • Both prime cost and diminishing value method deductions are shown for plant and equipment assets.
  • A forty year projection shows all of the deductions available for the life of the property.
  • Low-value and low-cost pooling are used to accelerate deductions.
  • The effective life of each asset is displayed and a total shown for the division 40 effective life and pooled assets.
  • A pro-rata calculation will be used when a property is acquired part way through a financial year or rented for only a percentage of the year.
  • Percentage based grouping of assets shows a calculation of all assets depreciated at the same percentage rate grouped and totalled.
  • Split reports are available when a property is owned by more than one person, resulting in higher deductions earlier.
  • Excel and CSV formats are provided to Accountants for easy use with software

The key points to remember are:

  • As a property gets older the building and the items within it wear out, put simply, they depreciate in value. The ATO allows property investors to claim a deduction relating to this.
  • To enable the maximisation of a tax depreciation claim, investors need to engage a specialist to complete the inspection and schedule. The ATO only allows for a few professions such as Quantity Surveyors to complete these reports

To find out how BMT can help you maximise the deductions from your investment property - Click here