Depreciation, what is it and how does Depreciation work?
Depreciation is a reduction in the value of an asset over time, due in particular to wear and tear or a decline in value of a building and its plant and equipment assets. The Australian Tax Office (ATO) allows property investors who claim an income from their investment property to also claim tax depreciation deduction each financial year. These deductions reduce your taxable income allowing you to pay less tax and increase the cash flow from your investment property.
Your accountant may be able to assist you with claiming depreciation on your investment property however, I believe there is real value in obtaining a depreciation schedule. A depreciation schedule is a comprehensive report that outlines the depreciation deductions available on your investment property including the building structure as well as all fixtures and fittings. I would recommend you use a specialist Quantity Surveyor to carry out this report.
I regularly get asked if properties are too old for a depreciation report. According to BMT Tax Depreciation Quantity Surveyors 61% of depreciation schedules prepared by BMT Tax Depreciation are for pre-owned properties. Of these schedules, 33% are properties which were built prior to 1987 and see owners claim an average of $4,042 in annual depreciation deductions in the first five years.
If you would like more information on depreciation or if you would like to get in touch with BMT please feel free to give me, Elaine Richards a call on 0438 329 261. I will happily pass your details onto my highly recommended Quantity Surveyor Theo Mavratzakis.