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
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
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
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 Eligible 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.
Why use Low-cost or Low-value Pooling for your asset depreciation?
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.
How to maximise your plant and equipment depreciation?
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.
How do I claim my plant and equipment depreciation, asset depreciation, structural depreciation?
A Capital Claims Tax Depreciation Schedule has all of the inclusions that help you to maximise your deductions such as:
- Individually itemised asset values
- Identification and separation of staged capital works and improvements – pre and post-purchase renovations
- 40 years of forecasted deductions
- Reporting of both diminishing value and prime-cost methods of depreciation, as well as graphing of the results for easy comparison
- Pooling of low-cost and low-value assets to speed up depreciation claims in the earlier years
- Inclusion of immediate write-off assets
- Itemised Division 40 asset depreciation for application against CGT at sale
We can arrange a free quote and estimate for your investment property click here. Otherwise, if you would prefer to discuss your investment property over the phone, call us on 1300 922 220. We offer an Australian-wide service.
