How does tax depreciation in Australia work

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A large number of property investors are paying more taxes than they are legally obliged to, because they do not claim the tax depreciation allowed on the property they have invested in. Depreciation is the term used in accounting to determine the reduction in the value of a property due to wear and tear, ageing. Usually it is one of the largest tax deductions which can be claimed by property investors. Many investors would like to find out how does tax depreciation in Australia work so that they can claim deduction. They should be aware that though the value of the land may appreciate, the Australian Tax Office still allows the investor to claim depreciation on the building, fixtures and other assets.

The depreciation allowed can be calculated under Division 43 and Division 40 of Australian Tax legislation. Division 43 allows depreciation on the cost of construction of the building or other property. This includes the cost of roofing, plumbing, bricks, walls, floors, staircases. Usually it is calculated at a rate of .5% annually. It should be noted that it is not calculated on the value of the property only construction cost is considered. In cases where the property owner does not have the exact cost of construction, he should hire the services of a quantity surveyor who will estimate the cost of the construction for calculating depreciation.  You can learn more about tax depreciation at Capital Claims.

Depreciation under Division 40 covers the various equipment, home appliances and other items which are installed in the building. These items include the air conditioning, hot water geyser, kitchen appliances like refrigerators, pool pumps, garage door, carpets. Under this division, the depreciation for each item is calculated separately based on the life of the item and its value. Hence it is important to retain the receipts or invoices for these items, so that the accountant can calculate the depreciation properly. In case the receipts are not available, the services of a quantity surveyor will again be required to estimate the value of the equipment.

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