As a building gets older, the items within that building begin to wear out and their value depreciates. Hence tax depreciation is a tax deduction claimed for the natural wear and tear of an income-producing building and its assets over time.
The Income Tax Assessment Act 1997 allows a property investor (All types of properties producing income - income generating asset), to obtain a tax depreciation schedule; enabling the investor to claim this loss in value as a tax deduction for each financial year, over 40 years of ownership.
Claiming a tax depreciation enables you to reduce your taxable income. You may be eligible for thousands of dollars in depreciation deductions each year.
You don't need to spend any money to claim. Tax depreciation is split into tow sections:
Division 43: Capital works deductions. Construction costs of the building itself, such as concrete, brickwork, foundations etc and permenantly fixed items to the buildings such as kitchen cupboards, doors and sinks. These contribute to about 85% to 90% of the Tax depreciation total claim.
The rates of depreciation are different between properties based on their type, industry and construction commencement date.
Division 40: Plant and equipment depreciation. Items within the building like ovens, air conditioners, carpets, blinds etc Basically items which are considered removable from the property. These are considered by the ATO as having a limited life and can e have depreciated over time. Our clients can have the advantage of depreciating more than 6,000 different ATO recognised plant and equipment assets.
Prime cost: The prime cost method depreciates assets equally over its effective life.
Diminishing value: The diminishing value method assumes the value of the depreciating asset declines in value each year, resulting in higher deductions in the first few years.
Our comprehensive reports include both methods. Hence you chose which method is more beneficial for yourself and your accountant.