Don’t forget to organise a depreciation schedule

Tax time is approaching. If you’re a property investor, it’s important to remember to organise a tax depreciation schedule.

Here are the benefits of organising a depreciation schedule before 30 June.

Depreciation deductions

Depreciation is the natural wear and tear of a building and the assets within it over time. The ATO allows owners of income-producing properties to claim this depreciation as a tax deduction.

There are two types of depreciation. Capital works (Division 43) are claimed on the building’s structure and items that are permanently fixed to the property. And plant and equipment (Division 40) are items that are easily removable from the property or are mechanical in nature.

Depreciation is a non-cash deduction, meaning you don’t need to spend any money to be eligible to make a claim. Because of this, depreciation deductions are frequently overlooked.

Failing to claim depreciation may mean missing out on thousands of dollars. During FY 2021/22, BMT found investors an average first-year deduction of almost $9,000.

To maximise deductions and claim all eligible assets it’s important to organise a tax depreciation schedule before the end of the year. 

Claim the cost of your schedule straight away

One of the advantages of obtaining a depreciation schedule before 30 June is that you can claim the fee straight back that financial year.

This also eliminates the risk of forgetting to claim the depreciation schedule’s fee as a deduction in the following financial year.

The cost of the depreciation schedule is 100 per cent tax-deductible.

Partial year claims

You don’t have to wait until you own the property for a full financial year before claiming depreciation.

You can claim depreciation if you have only owned a property for a short time before the end of the financial year, even if that is weeks or days.

The depreciation value of the assets will be calculated by how long the property has been owned. For instance, if the property has been owned and rented out for a period of three months, the owner is eligible for 25 per cent of the yearly deductions.

Receive payments regularly using Pay as You Go (PAYG)

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 KMT accountant, submitting a PAYG withholding variation will estimate your expected tax return for the financial year, allowing your employer to take less tax out of your wages. This process can be done at any time during the year.

It’s important to speak with your specialist quantity surveyor to organise a tax depreciation schedule before submitting a PAYG withholding variation as this information will be used to help accurately estimate your tax return.

You will still need to visit KMT accountant at the end of the financial year so they can calculate the actual amount of tax liability.

Claim missed deductions

It is always advisable to stay on top of your finances by claiming deductions in the same applicable year, as delaying your claim will only add extra confusion and stress to your next tax return.

However, if previous depreciation deductions weren’t claimed, the ATO allows you to recover missed payments from past financial years by adjusting your tax return.

This is useful for investors who were previously unaware of depreciation deductions.

Obtaining your tax depreciation schedule before June 30 is important if you want to maximise your returns and keep your finances on track!

The article is provided by BMT Tax DepreciationBMT Tax Depreciation has been a specialist in the industry for over twenty years and has completed more than 700,000 tax depreciation schedules for all types of investment properties, Australia wide. Check out their website here.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances and seek tax advice from a qualified accountant or financial adviser at KMT Partners.