Depreciation Schedules Explained
A Tax Depreciation Schedule is a comprehensive report that outlines the potential depreciation deductions available for an Investment Property under Division 40 and 43 of the Income Tax Assessment Act. Depreciation refers to the gradual wear and tear, deterioration, or obsolescence of an asset over time. For investment properties, the Australian Tax Office allows property owners to claim tax deductions based on this depreciation.
The Tax Depreciation Schedule prepared by our Professional Quantity Surveyors provides a detailed breakdown of the depreciable components of your property, including both the building structure (Division 43) and the plant and equipment assets (Division 40) within the property. It takes into account the age, condition, and expected lifespan of these assets to determine the depreciation deductions that can be claimed.
To determine the eligibility of your Investment Property for depreciation, we recommend contacting our Professional Quantity Surveyors directly. They will discuss the specific details of your property and assess its potential for depreciation deductions based on the applicable tax laws and regulations.
It's important to note that while TaxShield provides the Tax Depreciation Schedule, we always advise consulting a Qualified and Registered Tax Accountant or Tax Return Practitioner. They will guide you on which parts or all of the completed report you are eligible to claim on your tax return, ensuring compliance with tax laws and maximizing your tax benefits. Their expertise will help you make informed decisions regarding your tax deductions and ensure you meet all legal requirements.
Why do I need a Schedule?
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Increased Tax Deductions: A Tax Depreciation Schedule allows you to claim deductions for the depreciation of assets within your investment property. Depreciation refers to the wear and tear of assets over time, and the associated decline in their value. By claiming depreciation, you can reduce your taxable income and therefore decrease the amount of tax you owe.
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Improved Cash Flow: When you claim tax depreciation, you effectively increase your tax deductions, resulting in higher refunds or reduced tax payments. This additional cash flow can be reinvested into your property or used for other investment opportunities.
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Maximising Deductions: A Tax Depreciation Schedule provides a comprehensive breakdown of depreciable assets within your property, including both capital works deductions and plant and equipment deductions. Capital works deductions relate to structural improvements such as walls, roofs, and flooring, while plant and equipment deductions cover removable assets like appliances, carpeting, and furniture. The schedule ensures that you don't miss out on any potential deductions, optimising your tax benefits.
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Compliance with Tax Laws: Obtaining a Tax Depreciation Schedule ensures that you comply with Australian tax laws. The schedule is prepared by a qualified Quantity Surveyor who assesses the depreciable assets and calculates the allowable deductions based on the Australian Taxation Office (ATO) guidelines. This documentation provides evidence to support your claims in case of an audit.
Example of a Cashflow Comparison Table:
Let's consider a scenario where an investor owns a residential property with an annual rental income of $30,000. The property was purchased for $400,000, and they have owned it for three years. The investor is in the 37% marginal tax bracket.
| Without Claiming Tax Depreciation | With Claiming Tax Depreciation |
|---|---|
| Annual Rental Income: $30,000 | Annual Rental Income: $30,000 |
| Annual Expenses (excluding depreciation): $10,000 | Annual Expenses (excluding depreciation): $10,000 |
| Taxable Income (before depreciation): $20,000 | Taxable Income (before depreciation): $20,000 |
| Tax Payable (37%): $7,400 | Tax Payable (37%): $7,400 |
| Annual Depreciation Claimed: N/A | Annual Depreciation Claimed: $10,000 |
| Tax Benefit (37% of depreciation): N/A | Tax Benefit (37% of depreciation): $3,700 |
| Net Tax Payable/Refund: $7,400 | Net Tax Payable/Refund: $3,700 |
In this example, by claiming tax depreciation, the investor can reduce their tax payable from $7,400 to $3,700, resulting in a cash flow improvement of $3,700 per year. Over the course of several years, this can significantly increase the investor's overall return on investment.
Remember, this is a simplified example, and the actual tax benefits may vary based on individual circumstances, property value, depreciation rates, and applicable tax laws. It is advisable to consult with a qualified tax professional or Quantity Surveyor to obtain an accurate assessment based on your specific situation.
