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Tax tips: depreciation answers for investors

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Consulting with an accountant as well as a quantity surveyor can help boost investment success. Photo: Shutterstock

Tax tips: depreciation answers for investors

The complexity of depreciation unsurprisingly has many scratching their heads. While investors don’t need to be depreciation experts, here are answers to some of the most common questions on this area of taxation.

The complexity of depreciation unsurprisingly has many scratching their heads. While investors don’t need to be depreciation experts, here are answers to some of the most common questions on this area of taxation. 

  • What is depreciation and how does it work? 

It’s the natural wear and tear of a property and assets over time. While all properties and assets depreciate, depreciation can only be claimed as a tax deduction if the property is income-producing. This means only property investors, commercial owners and businesses can claim depreciation. 

Depreciation is a tax deduction, so it reduces the owner’s taxable income meaning they pay less tax. Depreciation deductions have the potential to boost cash by thousands of dollars. 

  • What is a tax depreciation schedule?

This is the key to claiming depreciation. A tax depreciation schedule is a report that identifies all available depreciation deductions for the property. The schedule lasts a lifetime, and the preparation cost is 100 per cent tax deductible. 

  • Can investors claim depreciation on all types of property? 

Most properties, both new and old, have depreciation available.

There are some myths out there that older properties can’t benefit from depreciation, but this isn’t always the case. While second-hand properties are impacted by 2017 legislation changes, the owner can still claim depreciation on new assets and any eligible capital works. 

  • Why does an investor need to consult with a specialist quantity surveyor? Doesn’t an accountant look after things like this? 

A specialist quantity surveyor prepares the tax depreciation schedule that an accountant uses to determine depreciation deductions. 

Consulting with both a specialist quantity surveyor and an accountant will help make an investment strategy bulletproof. 

  • What’s the difference between a repair and an improvement?

An improvement enhances something beyond its original state, such as replacing a wooden fence with new Colorbond steel fencing. A repair’s purpose is to fix something, for example patching a hole in a wall or repairing pipes. 

There’s also a big difference between the two when it comes to claiming them. Improvements must be depreciated using either capital works deductions or as plant and equipment. Meanwhile, repairs or maintenance can be claimed as a full expense in the year it was paid.

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