Tax Depreciation Schedules Explained: Why You Need One Now
Property investment usually revolves around rental returns, mortgage rates and projections of suburb development. The depreciation tax schedule is a simple method of generating cash that is overlooked by many investors. A bottom line can be altered by a schedule which is prepared by a qualified quantity surveyor, should you own an investment property.
What is a Tax Depreciation Schedule?
A tax depreciation schedule is a comprehensive report which indicates the deductions that you can claim on the wear and tear of your property and fixtures. Just as cars, buildings lose value. The decline is deductible as a tax deduction by the ATO to investors.
There are two key categories of a depreciation schedule:
- Capital works (Division 43): The structure of the building, concrete, brickwork, roofing, walls and fixed assets. When your structure was constructed later than September 1987, then you can deduct your construction expenses over a period of 40 years.
- Plant and equipment (Division 40): Removable or mechanical property on the property; carpets, blinds, ovens, air conditioners and hot water systems. These things tend to have a shorter life span, and hence, you get higher deductions at an earlier age.
What is a Depreciation Schedule?
With no depreciation schedule, you are leaving money on the table. These are the most important reasons why any property investor must have one:
1. Claims the Largest Tax Deductions
Hundreds of dollars of tax money can be tapped each year with a well-designed schedule. In addition to interest, management charges and repairs, you are also tapping into secret deductions based on the age, structure and contents of your property. To most people, depreciation is the second-largest deduction next to interest.
2. Improves Cash Flow
Depreciation is a deduction which is not cash- you are claiming it without making any expenditure in the year. It lowers your taxable income, and you are left with your bank account intact. That will result in increased tax time.
3. Applies to Old and New Properties
There is an opinion that only new properties can be considered. Newer buildings have a higher deduction, but even older buildings can claim very big amounts, and you can even claim a lot of it in case of renovations or improvements. A schedule allows you to take into consideration all that you are entitled to legally, irrespective of age.
4. Provides Long‑Term Benefits
A schedule takes up to 40 years (when the building is ready) in a person’s life. There is no need to renew it on an annual basis. That initial investment will yield over the years and will be one of the most profitable yearly expenses as a landlord.
5. Meets the Requirements of ATO
ATO stipulates that depreciation schedules should be filled in by a qualified expert, e.g. a quantity surveyor. Construction costs may not be estimated by accountants. An accurate and compliant report has been prepared by a professional, therefore, minimising the audit risk.
What If I Do Not Receive a Depreciation Schedule?
Not having a schedule deprives you of deductions that can save you thousands of dollars per year. Indicatively, a 500,000 residential property would be subject to a claim depreciation of between 5000 and 15000 in the first year, which will be based on age, construction and inclusions. Unless you have a schedule, you give that money back to the tax office. The savings that you skipped over a decade would reach tens of thousands of dollars that you could spend to pay your mortgage, invest in another project or alleviate the financial strain.
How Do I Get One?
- Engage a quantity surveyor. The ATO has recognised that only registered professionals can estimate building costs and prepare a compliant report.
- Site inspection. The surveyor will come to your property to determine what is eligible, the construction elements, and to ascertain that nothing that can be claimed is neglected.
- Schedule preparation. The report is further broken down to give a detailed report of the yearly depreciation deductions, which in most cases are limited to 40 years.
- Submit to your accountant. Give the timeline to your tax time, and the deductions will be written by your accountant on your return.
The preparation cost of the report is also tax-deductible, which is an added advantage.
The Bottom Line
Investing in property is not just about selecting the place to buy or investing and hoping that the value of the property will rise. Wise investors understand that tax maximisation is also important to the enhancement of returns and wealth creation. One of the best and simplest methods of doing this is by using a tax depreciation schedule.
A single upfront expense will provide you with years of deductions that enhance cash flow, minimise taxable income and release cash to reinvest. A depreciation schedule is a must-have whether you are dealing with a brand-new or decades-old property.
Tax savings are worth having, in case you are serious about making the most out of your investment property. Invest in a depreciation schedule and have your property earn its keep.