Depreciation refers to calculating the value of an asset during and at the end of its useful life. It provides a significant amount of tax deductions, by accounting for the decrease in value of tangible and fixed assets in a company. Here are some of the things you should know in order to take full advantage of this opportunity.
1. Understand your assets
The first thing you need to understand is that your assets are divided into two categories. The first is called capital works. Capital works are basically the costs of building or renovation works on your property, without the plant and equipment. The estimation of the costs of the works is made and you can claim 2.5% of the estimated cost each financial year for 40 years since the date of construction. Plant and equipment are the so-called “loose assets” which include many things such as air-conditioners, carpets, security systems, bathroom accessories, and so on. In general, you can claim from 20% up to 100% of residual estimated value each year. Depreciation for these two types of assets is calculated differently, so you’ll need to know exactly what is what.
2. Seek professional advice
Dealing with tax depreciation, however useful, is not an easy task. Because of that, you should consider finding a good specialist quantity surveyor to help you out and take care of your interests, and create a good tax depreciation report. Look at it this way – the money you’ll have to spend on an expert who can help you save tens of thousands of dollars is measured in a few (tax-deductible!) hundreds. Consider hiring Brisbane quantity surveyors to help you save money on your property investment. Doesn’t seem like such a bad deal, right? The laws are changing as well, so it’s better to have somebody who knows them in detail on your side. Even if you are fairly confident in your grasp of the matter, you may feel safer if there is an expert to back you up.
3. Apply for PAYG variation
Not many people are aware that you don’t really have to wait a whole year to do your taxes. A Pay As You Go (PAYG) variation allows you to get refunds on your taxes regularly, as opposed to once a year. Of course, it’s highly practical, because it provides a bit more cash each month, which can come in handy when you have to cover the expenses you have. Obviously, if you don’t need the extra cash each month, you may prefer doing it the traditional way and wait for the large sum of money once a year. However, if you decide to go with the PAYG variation, you’ll need to have your accountant apply for it, and the ATO needs to approve of it before you can actually switch to this variation.
4. Request a site inspection
Arranging for a site inspection is probably one of the most important steps you have to take. It ensures that everything is accounted for. A depreciation expert will take photographs of your property, in order to provide evidence, and your quantity surveyor should make a list of deductions for each item individually and calculate the yearly total. The lists for capital works and for plant and equipment items should be done separately, in order to allow the accountant to be more systematic and compose a clear claim correctly.
5. Prepare and update tax depreciation schedule
A depreciation schedule is simply a report which lists all the items for which you can claim tax deductions, and it includes both capital works and plant and equipment. It shows the exact sum each of the items listed is entitled to in tax refunds. If all is done well, the schedule will be taken care of by your accountant and the quantity surveyor, or you can even outsource this task if need be. However, updating the schedule is just as important as creating it. If you do any renovations, make sure they are accounted for, and the same goes for any purchases you make. They all need to be reflected in your depreciation schedule if you want to receive the tax refunds.
6. Tax depreciation for older properties?
According to the law, you can only claim tax depreciation for the capital works of those properties in which construction started after September 15, 1987. This law doesn’t affect plant and equipment items, but the legislation introduced in 2017 Federal Budget limits that part as well. It states that if you purchase a property after 9 May 2017, you won’t be able to claim allowances on any equipment installed by the previous owner. Only the pieces you bought actually count and should be listed in your depreciation schedule. All properties purchased before this date remain unaffected by these changes.
7. Check for residual value write off
Residual value is the value of an asset at the end of its working life. It can also be listed on your depreciation schedule, and it also allows you to claim tax refunds. For example, if you’re renovating a kitchen or getting new software for your business, get a quantity surveyor’s estimation of its residual value, and make a claim. After that, you can move on to renovation works or purchases, which are also tax-deductible.
8. Don’t ignore the small items
The good thing about the items with the value of under $300 is that they can be written off without waiting. That means that, whenever you have an item or a portion of an item that is worth less than $300, you can claim refunds immediately. Similarly, you can plan in advance when buying new items. The Low Pool Category contains the items worth $300 and $1000, and they attract a higher depreciation rate.
9. Use a calculator
If you want a quick estimate in order to know roughly what you’re dealing with, you can use some of tax depreciation calculators online. However, while they are a good and quick way to get a general idea of how much money you can count on, you’d be wise not to rely on them alone. Finding a good (human) professional can help increase your fortune because people can spot multiple ways to approach a problem where calculators only count. Therefore, while they are good as a quick solution, they are not a substitute for a real professional.
Tax depreciation can save you quite a bit of money. Make sure you take advantage of any relief your government is ready to provide for you.