At the end of a tax season, tax payers get their tax refund. Even with the existing tax deductions, Australians are hoping to find more ways to deal with the matter and reduce their tax payments. Luckily, anyone who is a property owner can benefit of something known as depreciation deduction.
The depreciation deduction explained
Depreciation refers to the decrease in value of an asset. Legal and very simple, the depreciation deduction can be seen as money through which the property owner gets back the cost of assets in time. This is in direct relation to property deterioration and does not affect only buildings, but also equipment, machines and cars. Computer programs are included too and even copyrights, which are non-tangible properties. These deductions do not apply to rented properties.
How to make the most of it?
If you are a property owner or investor and you wish to pay less, you should opt for professional help. Note that the Australian Taxation Office lets owners of properties that produce an income claim depreciation deductions according to a series of rules. The best course of action is to consult with surveyors perth – they can help maximise your cash return from investment properties so you can pay lower taxes. Professionals will not only calculate estimates, but also complete a tax depreciation schedule. Quantity surveying specialised firms help maximise the cash return from a particular investment property.
Rental property depreciation
Rental properties depreciate, too. However, this is recognized as such only when these properties are used for business or as investments (income producing properties). When, let’s say, an apartment was bought three years ago, but was never rented, then depreciation is non-applicable. Calculations begin only when the place is given to a tenant. Moreover, any addition or improvement will modify the cost, as these lead to property value appreciation and not depreciation.
The concept of accelerated depreciation is usually pointing to equipment. A company, for example, can speed up its depreciation expenses if it takes more depreciation for its machinery in the first years of usage, then less depreciation for the later years in the life of said equipment. As a result, income tax is lower for the first few years of using the asset, while the later years will see an increase in taxes. This method works best with companies that make a nice profit. For tax returns, the most common method is that of 7-year acceleration.
How is asset depreciation calculated?
Asset depreciation can be calculated using two methods:
straight line depreciation
With the diminishing value method, you get bigger deductions for the first years, their value decreasing with each year. Straight line depreciation means that the same amount of money can be claimed each year once an asset is purchased. No method is better than the other, as the total amount is exactly the same in the end for a given asset.
The benefit is that by choosing a specific tax depreciation calculation method, you can control the costs for each year as you see fit. In any case, depreciation deduction is a great way to retrieve real estate and asset costs for periods of time that go up to forty years.