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Sue's Property Management Tips


As it is coming up to tax time again, here are a few FAQS of interest….


Tax depreciation is an often overlooked component of property investment, despite the fact that it is a legitimate deduction against assessable taxable income. The Australian Taxation Office (ATO) recognises that the value of capital assets gradually reduces over time, and allows a tax reduction for the recovery of these depreciation costs. The principal behind tax depreciation is to compensate tax payers for the reduction in the value of items used to produce taxable income, in this case, rental income. The value of the building and equipment within it, new and existing structural improvements all attract depreciation and can provide deductions to the investor.

Q – What is tax depreciation?

A – Under Australian taxation law, it is recognised that a property that is used for the purpose of producing income contains elements that the tax payer can claim due to wear and tear. The relevant items are categorised and valued enabling the tax payer to be compensated for this loss in value.

Q – How does tax depreciation work?

A – Using guidelines set by the ATO , after all relevant sections of the investment property have been valued, a depreciating rate is then calculated for each item to establish a claimable amount. All amounts are then tallied and a yearly deduction amount is obtained. This per annum amount is then deducted from the tax payer’s assessable income reducing the tax paid by the property investor.

Q – Why can’t an accountant complete the report?

A – Under the ATO guidelines an accountant is not recognised as having sufficient knowledge in the construction industry to prepare a schedule. Quantity Surveyors are one of the few professionals recognised by the ATO to have appropriate construction costing skills to calculate the cost of items for the purposes of depreciation.

Q – Why does the depreciation report only last 40 years?

A – From the date of construction completion, the ATO has determined that any building eligible to claim depreciation has a maximum effective life of 40 years. Therefore, property investors can claim up to 40 years depreciation on a brand new building, whereas the balance of the 40 year period from completion of construction is claimable on an older building.

Q – Are the fees for this kind of report tax deductible?

A – The fee to complete this report is a legitimate expense thus the fee is completely tax deductible. Please add your content here.