Depreciation Schedules – Why do I need one?
This is the primary area in which Buying new investment property makes such a huge difference as there can be very large depreciation on a new property investment but virtually no depreciation on an old property investment.
The simple answer to the question is that a depreciation schedule (outlining the costs of all depreciable items) is a necessity and you must have one. The schedule is a one-off purchase (always organised by Lime Property Solutions for their clients at a very large discount) and the purchase is 100% tax deductible.
A Depreciation schedule is an accounting procedure for determining the amount of value left in a piece of equipment. There are several methods for calculating depreciation, generally based on either the passage of time or the level of activity (or use) of the asset. When a Quantity Surveyor completes an investor’s capital allowance and tax depreciation schedule, two main elements are generally included:
- Capital works deduction (division 43 – building materials) and
- Plant and equipment (fixtures and fittings – division 40).
These two “divisions”, 43 and 42 are treated differently by the ATO.
Capital works deduction:
Also known as building write-off, this is a deduction available for the structural element of a building including fixed irremovable assets. Residential properties built after the 15th September 1987 are eligible to claim this deduction of 2.5% over the Australian Tax Office (ATO) specified life of the property – 40 years.
Plant and equipment:
The plant and equipment depreciation deductions are available for removable assets. Plant and equipment assets are identified through ATO legislation as assets which have a limited effective life and can reasonably be expected to decline in value over the time they’re used.
Depreciation benefits vary depending on the type of building, its age, its use and its fit out. Commercial, industrial and residential investment properties can all claim depreciation based on either the diminishing value or prime cost methods of depreciation. The prime cost method is the more common method to be used by your accountant for the average property investor as it allows acceleration of deductions in the first few years. It is very important to note that you can’t switch between methods of depreciation so it’s always best to consult with your Accountant to work out the best method to suit your investment strategy.
