With a new understanding of property depreciation, you may be wondering how you calculate depreciation on your investment property assets.

Photo: Pixabay/AlexanderStein.

Sponsored article courtesy of Washington Brown

The Process

Before feeling intimidated by the following explanation, if you so choose, all you really need to know is that a quantity surveyor can inspect your property and prepare a depreciation schedule for you, without you having to understand how exactly depreciation is calculated.

If that is the case, all you’ll need to do is hand it over to your accountant at tax time. That’s all you need to know, if you wish.

What if I do my own taxes?

If you do your own tax return, you can easily include the figure straight from the quantity surveyor’s report yourself.

You don’t need to worry about complicated calculations. In practice, it’s as easy as a phone call to a quantity surveyor to ensure you get all of your allowable depreciation deductions. He or she will produce a one-off report you can use year after year. Another benefit to you, is that you can claim the cost of that report as a tax deduction as well.

The Calculation

Many investors, however, will want to understand the process for themselves. So, now for the nitty gritty. Here is an explanation of the laws behind depreciation. To give you some background, there are two parts of the Income Tax Assessment Act 1997 we are dealing with here:

1. Division 43 (Capital Works Allowance); and
2. Division 40 (Plant and Equipment).

The capital works allowance (more commonly referred to as the building allowance) refers to the construction costs of the building itself, such as concrete and brickwork. Plant and equipment refers to items within the building like ovens, dishwashers, carpet and blinds, etc.

Each of these two categories incurs claims. The building allowance is calculated between 2.5% and 4% per year of original construction costs (depending on the date of construction). Plant and equipment has a number of categories in which items are claimed at different percentages over their effective life. I’ve used the Washington Brown depreciation calculator to demonstrate the following example of how much you can claim on a standard $400,000, high-rise, two-bedroom unit in Melbourne.

Example of Depreciation Calculator:

Photo: Washington Brown.

Work out how much you save using our free property depreciation calculator or make it happen and get an obligation free quote for a depreciation schedule now.

Sponsored article courtesy of Washington Brown

Tyron Hyde
Tyron Hyde

Tyron Hyde is the Owner and Director of Washington Brown, an Australian quantity surveying organisation. Tyron has a Degree in Construction Economics (UTS) and is a Fellow of the Australian Institute of Quantity Surveyors. He began his career at Washington Brown in 1993 as a wide-eyed intern looking for a break in the industry. Twenty-eight years later, he is now the sole owner of Washington Brown Depreciation. With his passion and knowledge of property depreciation, Tyron is a regular speaker at industry conferences and is often quoted in national media.