Depreciation on Property Investments

depreciation

Depreciation – what does it mean?

We always hear the word depreciation. Just what is it and what does it mean for you if you’re a property investor? Let’s find out.

Basically, if you have an investment property that generates regular income for you without claiming depreciation, you might well be paying more tax than you should be. Should this be the case, rest assured you wouldn’t be the only Australian going through it. Most property investors fail to claim their entitlements on income generating property investments.

As a means of reducing your taxable income, the ATO actually allows investors to lawfully claim depreciation on buildings and associated equipment. But it is important to understand what does and does not fall within the acceptable criteria of eligibility.

The Income Tax Assessment Act (1997) contains the Capital Allowance Report, also known as a Tax Depreciation Schedule. Compliance with this document is required in order to make a claim on depreciation.

The schedule is a key element in maximising your allowable deductions as it is the very thing that enables accountants and tax agents to determine what amount of depreciation can be attributable to the different components of your income stream generated through your property investment. These schedules are certified by fully qualified Quantity Surveyors and are insured under professional indemnity insurance.

The Act assumes that value for all property excluding land on its own will eventually diminish as the property gets older and starts to wear out. It is the very process of determining the diminishing value that is known as depreciation.

There are experts out there who specialise in inspecting your circumstances and providing independent, professional advice. They can help you out by preparing an ATO compliant Tax Depreciation Schedule.

The Federal Government some years ago sought to toughen up the law concerning the registration of professionals that are qualified to be involved in the preparation of this information aimed at ordinary tax payers.

There is a piece of legislation called the Tax Agents Services Act 2009 requires that the registration with the Tax Practitioners Board for any individual providing advice concerning depreciation. This includes Quantity Surveyors.

If you are a property investor, it is very well worth seeking advice from a professional to make sure you understand what you are and are not able to claim for tax purposes!

For more information about calculating your depreciation – check out the ATO’s Calculator


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