The end of the financial year has arrived, so it’s time to get your tax depreciation schedule organized.
BMT Tax Depreciation would like to remind property investors of the benefits of ordering and paying for a depreciation schedule before 30 June.
What is property depreciation?
Depreciation is the natural wear and tear of a building and the assets within it over time. The Australian Taxation Office (ATO) allows owners of income-producing properties to claim this as a tax deduction.
There are two types of depreciation. Capital works deductions (Division 43) can be claimed on the building’s structure and assets permanently fixed to the property. Plant and equipment depreciation (Division 40) can be claimed on items that are easily removable from the property or mechanical in nature.
A comprehensive tax depreciation schedule is required to claim the maximum amount of depreciation, compliantly, at tax time.
A depreciation schedule has a one-off cost that is 100 percent tax-deductible. One way to maximize your tax deductions before the end of the financial year is to order and pay for a depreciation schedule before 30 June, so that the fee can be claimed in this financial year.
Doing this also eliminates the risk of forgetting to claim the cost of the schedule as a tax deduction in the following financial year.
Many investors will delay ordering a depreciation schedule as they think there aren’t any deductions available. This is false, depreciation deductions are available regardless of how long the property has been owned.
The total depreciation available will be calculated according to the portion of the year the property is owned. For example, if your property has been owned for three months, then 25 percent of the first year’s depreciation is available.
Immediate write-off allows any item added to a property costing less than $300 to be immediately deducted within the first year. This is regardless of how many days the property is owned in that year.
Low-value pooling can also be used to maximize claims over a short period of time. Low-value pooling applies to items in an investment property that are worth less than $1,000. Placing items in a low-value pool allows the owner to accelerate the rate of depreciation, increasing deductions earlier.
By arranging a depreciation schedule sooner, you can access additional cash flow throughout the year by incorporating a PAYG withholding variation.
With the help of your accountant, submitting a PAYG withholding variation will estimate your expected tax for the financial year, allowing your employer to take less tax out of your wages.
It’s important to speak with your specialist quantity surveyor to organize a tax depreciation schedule before submitting a PAYG withholding variation as this information will be used to help accurately estimate your tax.
You will still need to visit your accountant at the end of the financial year so they can calculate the actual amount of tax.
If you haven’t previously claimed depreciation deductions on your investment property, the ATO allows you to recoup missed payments from the last two years by adjusting your tax return.
This is especially helpful for first time investors who were previously unaware of depreciation deductions.
Ordering and paying for a depreciation schedule before 30 June will maximize returns and boost cash flow.
BMT Tax Deprecation helps clients find an average of $9,000 in deductions in the first full financial year. To learn more about ordering a depreciation schedule before 30 June call the experts on 1300 728 726 or Request a Quote.