Depreciation

If your property development is to produce income through rental, you’ll come to appreciate the word depreciation!

The Australian Tax Office (ATO) allows a certain amount of wear and tear on the dwellings each year, the cost of which can be claimed against the income the property produces as depreciation. There are two methods of calculating depreciation:

1. Diminishing Value Method; the claim is calculated as a percentage of its residual value after writing down it’s previous value. As the years pass the claimable amount diminishes.
2. Prime Cost Method; a fixed value calculated as a percentage of the item’s original value. You claim less initially but this does not reduce for the life of the item, as a diminishing value claim must.

The best way to ensure you maximise your tax deduction through depreciation is to have the depreciation schedule provided by a licensed quantity surveyor.