Ban Tacs Accountants Information Sheet - Depreciation Explained
Depreciation on building
Only residential properties built or improved after 17th July 1985 qualify for special building write off (depreciation) and between 1th July 1985 and 16th September 1987 the depreciation rate was 4% so it is now all but used up. Accordingly it is not worth considering special building depreciation unless the property was improved or built after 16th September 1987. So the rate will always be 2.5% over 40 years. It is the original cost to do the work not the amount paid by a later purchaser and it does not include landscaping or plant and equipment.
To help prospective buyers estimate the deprecation deductions they are entitled to BMT & Assoc (quantity surveyors) has a Tax Depreciation Calculator on their web site. You simply enter the Property Type, Construction Type, Quality of Finishes, Floor Area, Construction Completion Date, Purchase Date, Nearest Major City and the calculator will give you an estimate based on properties in that area. The only problem with the BMT & Assoc Tax Depreciation Calculator is that the building depreciation and plant and equipment depreciation are added together. In our calculator you need to have these amounts separate.
BMT & Assoc Home Page: http://www.bmtqs.com.au/index.htm
Depreciation on plant and equipment
There are two methods of depreciation that you can use. The diminishing value method is a higher rate but each year the value of the asset, that you apply the rate to, decreases by the amount of depreciation claimed in the previous years. The prime method is a consistent amount each year. The prime method is best used in this calculation. If any of the items listed below are less than $1,000 per owner (i.e. $1,800 hot water system in property owned by husband and wife would qualify as under $1,000) putting them in a low value pool will qualify you for a diminishing value depreciation rate of 18.75% first year then 37.5% pa for each year after that. Examples of the items that would be considered plant and equipment and their depreciation rates if purchased after May 2006:
| Item | Prime | Diminishing |
| Light Fittings Not Hardwired | 20% | 40% | Security Systems | 20% | 40% | Water Pumps | 5% | 10% | Motors and Fans | 5% | 10% | Ceiling Fans | 20% | 40% | Air Conditioners | 10% | 20% | Hot Water Systems | - Gas | 8.33% | 16.66% | - Electric | 8.33% | 16.66% | - Solar | 6.67% | 13.33% | Dishwashers | 10% | 20% | Stoves & Ovens | 8.33% | 16.66% | Range Hoods | 8.33% | 16.66% | Garbage Disposal Units | 10% | 20% | Carpets & Vinyl | 10% | 20% |
Follow this link to the ATOs website for a comprehensive list for depreciation: www.ato.gov.au/....
To learn much more about depreciation please read our free Investment Property Booklet or chapter 15 of Noel Whittaker and Julia Hartman's book: Saving Tax on your Investment Property. There are many more free booklets under the Freebies section of this website.