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What is Tax Depreciation

The sole purpose of Tax Depreciation also referred to as Capital Allowances, is to compensate the taxpayer for a decline in value of assets over an effective life as determined by the Australian Taxation Office (ATO). Tax Depreciation is available to property owners, investors and developers through the Income Tax Act 1997 (ITAA 1997) and ATO tax Rulings.

The majority of Tax Depreciation schedules are prepared following the acquisition of an investment property, where historical construction costs unknown. Preparing a Tax Depreciation schedule will require a suitably qualified person to calculate building and plant costs. The ATO recognises a Quantity Surveyor as a qualified person as detailed under Tax Ruling 97/25.

Our Tax Depreciation schedules are both Inspected and prepared by our experienced Tax Registered Quantity Surveyors.
A Capital Works deduction, includes the deduction for construction expenditure incurred on income producing property.

These costs are based on the original costs incurred which is often unavailable upon the acquisition of an asset. Our qualified Quantity Surveyors are able to establish a cost basis based on historical construction expenditure.

Many Tax Depreciation companies often forget to include any capital expenditure incurred after the construction date. This expenditure may include asset replacement such as a new suspended ceiling, or the installation of a new kitchen. At Koste we ensure that all capital expenditure is identified and that your Tax Depreciation claim is maximised.

The following table illustrates the depreciation rates currently available on properties calculated on a prime cost basis (Straight Line) these costs will exclude Div 40 Capital Works expenditure and Non eligible work items.
Capital Allowances also referred to by the ATO as depreciating assets are available to any investor who has a income producing property regardless of a buildings age or condition.

These assets often have short effective lifes and therefore depreciate at an accelerated rate. The value of these assets is based on the original cost, or an apportionment of the purchase price on acquiring a property.

The ATO typically publishes a Tax ruling perodically which lists qualifiing depreciating assets and the effective life of thoses assets which includes assets such as Fire services, Mechanical or Floor coverings.

The ATO gives you the opportunity to depreciate your assets either by the Prime Cost Method (Straight Line) or by the Diminishing Value Method (Accelerated rate) your accountant will advise on the best method for you. The following table illustrates the overall depreciating asset content of the overall capital expenditure.