Tax depreciation advice: Where to go for help?

Don't be alarmed by lost income from depreciating assets, help is at hand. Income tax law allows you to claim certain deductions for expenditure incurred through generating income, such as that of running a business. This might refer to property depreciation also, whereby a property’s value has steadily dropped. Income tax depreciation may affect you if you are a contractor or small business claiming back expenses. Whatever your scenario, depreciation and tax can be geared to assist you.

Property tax depreciation schedule

Visit the Australian Tax Office (ATO) to apply online immediately for pay adjustment to correlate with property depreciation. At the ATO website you can fill in a form allowing you to submit up to three properties that are depreciating. If you wish to apply for more than three properties you must do it via the post however. Be sure to have depreciation schedules ready for each property; you must estimate income, expenses and depreciation. Your paymaster will be automatically informed of your new tax rate (or amount) and the process time is about two weeks.

For property, depreciable items include above ground swimming pools, air conditioning units, carpets, furniture and fittings, televisions, and hot water systems, to name a few. Items that count as non-depreciable include door and window fittings, floor and wall tiles, electrical wiring, built-in kitchen cupboards, plumbing and gas fittings, and roller door shutters.

Income tax depreciation for sole traders

A depreciating asset is one that has a limited effective life, i.e. one that is expecting to decline in value over time. Prime examples include computers, furnishings, cars, electrical tools, and so on. You can claim for part of the value of such an asset, for every year that it is expected to be used for business purposes. Sole traders and business partnerships can claim for depreciation in company assets, but there are limits. Deductions are only allowed on plant and equipment actually used for producing assessable income.

Uniform capital allowance (UCA) rules govern most depreciating assets, unless eligible taxpayers elect to enter the simplified tax system (STS, which is common for most small businesses), whereby other STS rules apply. Both these systems allow an immediate deduction for depreciating assets, with regards to the UCA system it is only for assets costing $300 or less. These assets cannot be used mainly for carrying a business, however.

Tax depreciation calculator

If you want to work out how much an asset has dropped in value, you can find an online calculator on the ATO website. The calculator will give you a rough amount that you can expect to be deducted for the decline in an asset's value. It can also offer a total deduction for up to eight assets, i.e. the total that you can expect to receive in terms of a deduction amount, based on the current income tax year. The tool also compares between diminishing value and prime cost.

The calculator does have restrictions though. Assets should have been acquired after 21 September 1999 (or 30 June 2001 for small business taxpayers) and your use of the asset should be constant from year to year (i.e. not vary). Furthermore, you cannot have personally changed the value of the asset since acquisition, for example by making improvements or removing parts.

If you are a contractor or sole trader, or a small business, that has depreciating assets, or if you have an investment property that is depreciating in value, you may be able to claim income tax depreciation. One word of caution though, check with your financial advisor or contact the ATO directly to check what is and isn’t eligible for depreciation claims. The ATO has fervently targeted false depreciation claims, cracking down on those who give incorrect asset values or list items that can’t be claimed for.

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