If you are a property investor who is looking to pay less tax and increase your income streams, then you should make sure you have a tax depreciation report.
Up to 80% of investors do not take advantage of property depreciation by organising a tax depreciation report (also referred to as a tax depreciation schedule).
What is a property tax depreciation?
Depreciation doesn’t require an expense to claim. It is the natural process of wear and tear, reducing tax liabilities for investors with minimal outlay.
Depreciation for investment properties is divided into two categories:
- Plant and equipment - to the value of all the fittings and fixtures within the house including carpet, curtains, dishwashers, hot water systems and lights.
- Building allowance - the construction costs of the building itself. This includes bricks and concrete, general wear and tear and any renovations or extensions you, or previous owners, may have added.
According to the ATO, the average property investors depreciation claimed in the 2018/19 financial year was $3,885 – on average $2,571 capital works, and $1,314 in plant and equipment. Property owners who had organised a depreciation report in the FY 2018/19 claimed on average $8,260 - $4,300 more than the ATO average.
What does a depreciation report include?
A depreciation report is a detailed document that includes:
- A breakdown of all building allowance costs.
- A breakdown of all plant and equipment costs.
- The rates at which you can claim different items and the effective lifespan estimate of each item.
- A breakdown of how much you can claim per annum based on the financial year end.
A good report will break down your plant and equipment depreciation by two methods:
- the diminishing value method and
- the prime cost method
These give you different options for claiming depreciation on your assets depending on your needs, Aspen Corporate can work with you to decide which method will best suit your tax needs.
The good news - the cost of the depreciation report is 100% tax deductible.
If you think you need a depreciation report or would like to have your existing schedule reviewed, contact your Aspen Corporate advisor today.
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