Certain doubts about tax depreciation cleared

Posted by Mike on June 26th, 2017

It is common knowledge that assets earn income for you in business. Naturally, this income is subject to tax. It is a mandatory requirement to pay tax. However, you do get certain concessions in the form of deductions from your gross income. One such important deduction is the depreciation in the value of your income earning asset. This depreciation is known as tax depreciation. You can use this tax depreciation as a deduction from your gross income and thereby incur a lower tax liability.

When it comes to depreciation, people do have doubts about the assets that qualify for depreciation. In short, we can summarize that any income earning fixed asset qualifies for tax depreciation. This asset could be in the form of buildings, plant and machinery, additions to your buildings that are in the form of fixed assets etc. The buildings could be residential or commercial. However, the prime qualification is that the asset should be a source of income for you.

This article will help you to clear your doubts about tax depreciation.

One should understand that residential buildings that have commenced construction after July 18, 1985 will qualify for tax depreciation purposes. This will naturally force people to have doubts whether buildings constructed prior to this date are completely ineligible. There are possibilities that building constructed prior to July 18, 1985 might have had repairs and renovations carried out after this date. The cost of the repairs and renovations qualify for tax depreciation purposes. In addition, you should note that certain plant and equipment items like hot water systems, blinds, carpets, etc. qualify for the tax depreciation irrespective of their age.

People can have their doubts about the items of plant and equipment that qualify for tax depreciation. The range of items that do so is tremendous. It could include every possible fixed asset you could think of such as security systems, smoke alarms, solar generators, ovens, garbage bins, bathroom accessories, carpets, air conditioning equipment, etc. The list is an exhaustive one.

What should be the ideal duration of a tax depreciation schedule? According to the ATO guidelines, the normal life of a residential building is around 40 years. Hence, an ideal tax depreciation schedule should last for at least 40 years. The reports issued by qualified surveyors such as MCG Quantity Surveyors contain tax depreciation schedules for a full 40 years.

Some people feel that claiming tax depreciations on newer properties is worthwhile whereas the older properties do not fetch the requisite concessions. They are right in a way. However, when you enlist the services of MCG Quantity Surveyors, they assure you of one thing. If the tax benefit is not worth at least twice their fee amount, they feel it is not worthwhile to have a report.

There can be other doubts such as the different types of depreciation methods followed by various companies. We shall discuss the same in a separate blog.

We sum up by stating that tax depreciation can help you to save on a substantial amount in tax. When you have this provision, you should use it to your advantage.

Contact:

MCG Quantity Surveyors
Level 32, 1 Market Street SYDNEY, NSW
2000
Australia