Purchasing an investment property it is a huge financial decision. When it comes to making that investment work for you and getting the most out of it, generally you will want to claim every possible tax deduction and claw back every dollar that is available, as fast as possible.
One available deduction is asset depreciation. Typically, the tax depreciation deduction (which covers both the asset and the building depreciation) is one of the largest deductions available to a property investor.
Investors that have new properties, brand new assets, and properties that are purchased and rented prior to May 2017, have the added benefit of Accelerated Diminishing Value Depreciation calculations such as Low-cost Pooling, Low-value Pooling and Immediate Write Off.
These ATO legislation allowances allow the investor to claim their plant and equipment depreciation benefits more aggressively – reducing their taxable income, often resulting in more money back in their pocket and an improved cash flow position.
Asset pooling is the combining of individual assets into a ‘pool of assets’ that are depreciated at the same accelerated rate. The reasons assets are pooled varies, as does how they are treated, but the 2 basic concepts are described below.
Low-cost pooling describes the pooling of individual assets that have cost the investor up to and including $1,000.00 at purchase, per individual item. The low-cost pool of assets is depreciated at 18.75% in the year of purchase, and 37.5% in every year thereafter. Assets purchased for up to $300.00 may, or may not, be written off completely in the first year (dependent on the circumstances of the investor and the nature of the asset).
Low-value pooling describes the pooling of assets that have already been depreciated using the diminishing value method, and the written-down (residual) value is now less than $1,000 per individual asset. The assets in the low-value pool are depreciated at 37.5% per year for immediate write-off.
Assets purchased by the investor for less than $300.00 are eligible for immediate write-off. This applies only to assets that are not part of a group or set of assets. For example, a single garbage bin purchased for $189 can be immediately written off, however, a set of six dining chairs purchased together for $100.00 each will not be eligible – they will be pooled and depreciated at the accelerated rate.
Pooling of assets into low-cost or low-value pools allows the investor to depreciate those items at an accelerated rate and claim a greater amount than if the items were left to depreciate at their standard prescribed rates.
This provides greater claims and cash flow to the investor in those years. Not all tax depreciation providers use low-cost and low-value pooling, and therefore the results in their schedules, for the investor, are not considered as valuable. Quality providers such as Capital Claims Tax Depreciation use low-cost and low-value pooling in all tax depreciation schedule, unless requested otherwise.
When calculating plant and equipment depreciation, a qualified quantity surveyor will be able to complete a tax depreciation schedule for you. This will cover the depreciation of the Division 43 structural component, at the same time ensuring that all plant and equipment assets are correctly allocated into their asset depreciation pools, and you are getting the highest possible depreciation deductions available.
A Capital Claims Tax Depreciation Schedule has all of the inclusions that help you to maximise your deductions such as:
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Mark is an expert quantity surveyor, business owner, public speaker and property developer. With 20+ years experience in the construction and quantity surveying industry Mark’s specialist expertise have been sought in consultant capacity by professional bodies such as the National Institute of Accountants and the National Tax and Accountants Association, and he has presented at various property and tax seminars and expos nationwide. Mark holds a Bachelor of Construction Management from the University of Newcastle, is an affiliate member of the Australian Institute of Quantity Surveyors and a Registered Tax Agent.View all posts by Mark Wilkins