Maximize your property investment benefits with a tax depreciation schedule
Having a professional prepare a tax depreciation schedule estimate for your SMSF investment property, will detail the tax deductions and associated allowances that may be available to the owner under the Income Tax Assessment Act 1997 (ITAA97). A tax depreciation schedule should provide a guide to the potential depreciation and building allowances available from the investment of a residential or commercial property, facilitating the estimation of the after tax return on the investment over the first 10 full years of ownership.
Depreciation Potential – Plant and Capital Allowance
The purchase of an investment property, intending to be used for income producing purposes, is entitled to depreciation including:
1. Division 40, Depreciation of Plant and Equipment; and
2. Division 43, Capital Works Allowances (2.5% or 4%)
The depreciation of the fixtures and fittings is based on the diminishing value of effective life rates as published by the commission of taxation. Where the fixtures and fittings are not sold at an agreed value, the items will be depreciated on the basis of a just attribution of the total expenditure (42-65 ITAA97).
Capital Work Allowances
The building write off allowance is based on the date of the purchase of the investment property, inside your self managed super. Where the property in question qualifies for the special building write off, the applicable depreciation rate will be used (either 2.5% or 4% per annum). Where the property is purchased prior to or subsequent to the eligibility date, no capital works allowance will be provided. The taxation benefits will be based on the historical cost of construction less any depreciable items.
Benefits of Tax Depreciation Schedule
Having a tax depreciation schedule estimates prepared will ensure that investors are easily able to determine their after-tax cash position if they were to invest in a particular property. The reports should detail the minimum and maximum range of depreciation along with the expected depreciable “plant and equipment articles” within the building write off allowance. Tax depreciation reports should be used as a guide to claim depreciation deductions when completing your fund’s tax return. The report should provide the basis for maximising claims covering both fixtures and fittings and building write off. Many investment property owners are not fully aware of the benefits that tax depreciation provides, and can potentially miss out on thousands of dollars to be claimed in depreciation deductions on a particular investment property. Contact our office today to find out more. Appoint SATO SMSF Administration® today to maximize the after tax return on your investment property.
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