Depreciation – Pros and Cons

Brisbane Property depreciation is basically the income tax deduction that lets a taxpayer recover the cost of property (other properties have other basis). It is the yearly allowance for the wear and tear, deterioration and obsolescence of a property.

Actual property types (except land) like buildings, vehicles, machinery, furniture and equipment are depreciable. This is also applicable to other intangible properties like patents, copyrights and software for computers.

This may not sit well with some property owners, but the flipside is that property items like homes, cars, machines, and others are slated to depreciate over the years. It can then be your source to base your claim to depreciation of your investment property against your taxable income.

Property depreciation

When taking a claim on your property’s depreciation, you need to hurdle some requirements. The first one is easy – you simply need to own the property.

Depreciation deduction is also allowed for a property for any capital improvements that the taxpayer leases. The tax payer must also use the property in business in any income-generating activity.

The property must also have a determinable useful life. The depreciation cannot take place if the taxpayer has the property placed in service and disposed of the same year. If used for business and personal purposes, the depreciation will only apply on the business use.

Depreciation period

The depreciation begins when the taxpayer puts the property in service for use in a trade or business and in producing an income. The property stops being depreciable after the taxpayer had fully recovered the cost of the property. Or, the owner retires it from service (whichever comes first).

The taxpayer is duty-bound to identify several items to ensure the proper depreciation of the property. This includes the depreciation method of later properties, the class life of the asset, whether it is “listed property” or whether the taxpayer is qualified for the first year depreciation (a bonus).

Timetable

The schedule of the depreciation can help the taxpayer pay less tax. The depreciation amount that the schedule says your claim will effectively reduce your taxable income.

There are different cut off dates for commercial and industrial properties. If your residential property was built after July 1985, you may claim building allowance for the plant and equipment. (You can only claim on plant and equipment if your building was built before the cut-off date.)

Quantity surveyors

The Australian taxation office (ATO) rules that quality surveyors are the only qualified authorities to make the appropriate estimate of the construction costs of a property, should the costs are not known.

Your accountant is not allowed to estimate the costs of construction if it was built after 1985.

The ruling is the same for real estate agents, property managers and others – they are not allowed to make the estimate.

Specialists

Quantity surveyors are the recognized specialists in the accurate measurement of construction costs. This is seen as maximizing the client’s financial position with regards to their property assets.

Anyone who can buy a property for purposes of income-production is entitled to have Brisbane property depreciation on the items in the building and the building itself.