What is a Tax Depreciation Schedule, and How could It Help Me?
Successful investments don’t just happen: they’re the result of understanding the market and having the right tools in place to ensure that you get the best bang for your buck. In short, it’s about being savvy, not just lucky.
And the reality is that many Australian investors pay more tax per annum than they need to, simply because they don’t understand what they are eligible to claim through depreciation!
For many investors, having a tax depreciation schedule in place is a way to save thousands of dollars each year. And although the value of a tax depreciation schedule is often sorely underrated, it’s one of the easiest ways of making your money work for you and getting the most out of your asset.
So, let’s zoom in and get a better understanding of what a tax depreciation schedule is, and how it could make a big difference to your investment:
Depreciation(n): decrease in value due to wear and tear, decay, the decline in price dictionary.com
Constant wear and tear on your investment property and the assets in your investment property will inevitably mean that their value will decrease over time. Depreciation is an accountancy term used to describe the ageing and gradual wearing out of an asset over a number of years.
Depreciation is a major expense for investors, and today we’re looking at how to recover some of these depreciation costs…
What is Tax Depreciation?
Tax depreciation is simply an amount that can be deducted yearly from the value of the assets within your investment property over time. So put simply, as the assets age their value goes down, and you are able to claim a portion of this each financial year against your tax.
So, even if the re-sale value of a property increases, the actual building and its assets will wear out over time, and this can be claimed as a tax deduction.
What is a Tax Depreciation Schedule?
A tax depreciation schedule is a document that clearly sets out the building costs and the value of the assets belonging to a property, and the depreciation deductions that the investor is entitled to claim on the assets within the investment property.
In Australia, a tax depreciation schedule is calculated using the original construction cost of the property (Division 43) and the value of its assets (Division 40).
What are Division 43 Deductions?
This includes the building components of the property such as:
- Tiles
- Bricks
- Framing timber
- Concrete
- External cladding
- Retaining walls
What are Division 40 Deductions?
This includes the movable plant and equipment within the property such as:
- Carpets
- Dishwasher
- Air-conditioning/heating system
- Curtains
- Hot water service
Who Prepares a Tax Depreciation Schedule?
Unlike a yearly tax report, a tax depreciation schedule is prepared by a specialist quantity surveyor for the lifetime of the rental property. Generally speaking, an accountant does not have the skills to estimate the costs associated with building and renovating your property, and therefore cannot produce your tax depreciation schedule.
When Should I get my Tax Depreciation Schedule?
ASAP! Ideally, you should get a tax depreciation schedule done as soon as your property becomes available for rent. Having your schedule done before the end of the first financial year after purchase will ensure that you are able to claim these deductions and recoup some of the brass you’ve invested into the property.
Does anyone like paying out more tax than they have to?! With June 30 just around the corner and EOFY fever in the air, the team at Love & Co strongly recommend that you get your tax depreciation schedule in place. After all, its in our interest to help our investors get the best return on their properties, and we’re keen to help out wherever we can!
Have more questions about what you might be able to claim? Contact us here – our team is only ever a phone call away.