Depreciation is the natural wear and tear of property and assets over time. It’s normally thought of as a high-value, slow-burn deduction as it takes up to 40 years for an entire property to depreciate.

However, there is an immediate deduction available for depreciable assets. Savvy investors can start claiming it right away and increase cash by thousands in a year.

What is the immediate deduction?

Plant and equipment assets are those that are easily removable or mechanical in nature. For investment properties, they often come in the forms of:

• furniture
• kitchen appliances
• hot water systems
• blinds and curtains
• light fittings.

When a plant and equipment asset costs $300 or less it may be eligible for the immediate deduction. This means you can instantly claim the cost in the year of purchase. There’s no limit to the amount of immediate deductions you can claim in a year, so total deductions can easily reach the thousands.

Rules

Not all plant and equipment assets are eligible for the immediate deduction. When preparing your tax depreciation schedule, a specialist quantity surveyor can analyse the asset against the relevant rules.

They will consider the cost, use of the asset, whether it’s substantially identical to other assets and if it’s part of a set. You can read more about the relevant rules here.

What happens if the asset costs up to $300 but doesn’t meet the rules?

When an asset doesn’t meet the relevant rules, you can still take advantage of accelerated depreciation deductions through low-value pooling.

Low-value pooling allows you to claim 18.75% of the asset’s value as a depreciation deduction in the first year, and 37.5% for each following year. This incentive is available to plant and equipment assets that are valued between $301 and $1000.

You can take advantage of every available depreciation deduction and incentive by obtaining a tax depreciation schedule. Only a specialist quantity surveyor can prepare the most accurate and compliant tax depreciation schedule that lasts the lifetime of the property.

If you have any questions regarding depreciation or would like assistance knowing how you can use it to benefit your business or investment, give us a call on 03 5443 0344 or email afs@afsbendigo.com.au

Articled provided by: BMT Tax Depreciation