Looking for the answer to what a particular tax depreciation schedule word or term means?
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Australian Taxation Office
The (ATO) Australian Taxation Office is the Australian Government’s principal revenue collection agency.
Australian Institute of Quantity Surveyors
The (AIQS) is the primary professional standards body for Quantity Surveyors. The AIQS ensures all practicing Quantity Surveyors keep up to date with industry knowledge and maintain the highest level of professionalism.
Commonly known as Capital Works Allowance, the building allowance is the division 43 items in and on your property. Mainly the building superstructure, internal fitout and hard landscaping.
Another name for Division 43 / Capital Works / Capital Allowances / Building Allowances
Capital gains tax
The tax you pay on the profit margin between the purchase price and sale price of your investment property. Most commonly referred to as CGT.
Capital works deduction
A Structural or permanent asset in or on your property installed after 15 September 1987 (26 February 1992 for landscaping) that can be claimed as a tax deduction each financial year. Typically claimed at 2.5%pa but some property is eligible for 4% pa. More commonly known as Division 43.
Capital Loss Schedule
A separate schedule within your depreciation report listing all assets that cannot be climbed as yearly tax deductions. However, it is important to value these items and keep track of their condition as you may be able to claim these items a ‘Capital Loss’ against any future Capital Gains.
The incoming money an individual or entity receives from income and tax refunds.
Property used for income producing purposes through the non-residential leases. Examples: cafe, bookshop, factory
Typically minor works like painting, tapeware replacement, sanding & polishing of timber floors and so on. These items can be claimed within the Division 43 schedule and can sometimes be claimed as repairs & maintenance items at 100%% write-off
A financial loss or expense that can be marked off against income to reduce the tax payable.
An item/asset within your investment property that can be expected to decline in value over time. Typically, a percentage of these items can be claimed as a tax deduction each financial year.
Diminishing value method
Within the Division 40 category, the ATO provides the option of using the Prime Cost method or the Diminishing Value Method. The DVM is often most preferred as it allows for claiming back the tax depreciation deductions twice as fast as the Prime Cost Method.
The category which the ATO allows property investors to claim yearly depreciation on ‘plant and equipment’ items such as carpets, blinds, appliances, motors and pumps to name just a few. The rate of depreciation on these items ranges from 3%pa right up to 100% instant write-off
The schedule in which capital works can be depreciated at 2.5% pa. In some commercial property you can claim at 4% pa.
The ATO has determined the anticipated useable life for every depreciable asset. Item/asset life is known as the ‘effective life’ and can range from 40-years right down to less than 1 year..
First Available for Rent Date
The date your property was empty and able to take in tenants and offered/advertised for rent.
Instant asset write-off
Some items can be written-off at 100% in the financial year in which the expense occurred. Typically this is limited to items <$300 in value. But some businesses can claim instant asset write-off on items greater than $300 in value.
The Low-Value pool is a sub-category within division 40. It is for items with a value less than $1,001. In the first year of depreciation, the items can be claimed at 18.75% pa. In all following years the item can be claimed at 37.5% pa.
When your property has more expenses (overheads) than the income produced in that financial year. When a property is negatively geared you may be able to carryover excess losses to be marked off against other income streams. Further reducing your tax bill.
When the income and outgoings for your investment property are equal (or close to equal), meaning you have neither had an income shortfall or gain.
In your depreciation report this is the value of each item in the first year of depreciation. Subsequent years use the written down value.
Plant and equipment
Division 40 also known as ‘plant and equipment’ is the category sued for the depreciation of ‘easily removable fixtures and fittings found in and on your investment property. Both residential and commercial
When your (rental) income exceeds your overheads – such as loan interest, agent fees, tax deductions. Leaving you with a net profit at the end of the financial year.
Prime cost method
In Division 40, the Prime Cost Method can be used to calculate depreciation for plant and equipment assets. The Prime Cost method is for items with a value greater than $1,000
A qualified construction industry professional who specialises in construction ost estimating and measurement. Quantity Surveyors are one of only a handful of professions recognised and accepted by the ATO as having the required skills to calculate the cost of items for the purposes of depreciation.
A very common miss pronunciation of Quantity Surveyor
Residential investment property
A house, unit or townhouse (including holiday accommodation) used for income producing purposes by charging a regular rental fee for the property.
A scrapping schedule is a separate schedule within your depreciation report listing all assets that have been replaced during the life of the rental period. When an item is replaced with a new item, but still has some residual value (written down value), you can claim this leftover value as a lump sum deduction in the year the item was replaced.
A qualified quantity surveyor will physically inspect your property to take measurements, photos and notes. This is to guarantee maximum tax deductions are achieved.
When a property is substantially renovated (including but not limited to removal of walls, roofs, foundations and additions made such as extensions and second floors) the building is treated as ‘new’ and may be depreciated in the same manner as a brand new house.
After all eligible tax deductions have been marked off as losses against your gross income, the remaining income is the amount on which you will be taxed. If your net income is less than the tax-free threshold of (just under) $20,000, you may not have to pay any tax.
An expense incurred relating to the production of income from your investment property and is eligible to be marked off as a loss against your rental income. Therefore reducing the tax you pay.
Tax depreciation schedule
A report prepared by a qualified Quantity Surveyor, specialising in tax depreciation, that lists out all assets in and on your investment property, Assigns each item a value and effective life to determine the annual tax depreciation on each item.
Tax Practitioners Board
The governing body which regulates all qualified and practicing accountants, book keepers and Quantity Surveyors (carrying out tax depreciation schedules) within Australia.
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An expense related to your income producing property that can be marked off as a tax deduction against your rental income stream.
Written Down Value
The closing balance for the individual assets within your tax depreciation schedule at the end of each financial
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This article was written by William Callaghan A.A.I.Q.S.
2nd generation Quantity Surveyor and founder of WRC Quantity Surveying