Getting a Better Understanding of Tax Depreciation
Posted on: 19 September 2019
If you are an individual or business looking to invest in property/assets or have already invested, you need to have a better understanding of tax depreciation.
Depreciation is when an asset ages and wears out over time. If you look at the definition of an asset, it can either be something tangible (equipment, building, etc.) or intangible (trademarks, goodwill, copyrights, etc.). Of course, an intangible asset cannot wear out over time, therefore, intangible assets are not depreciable. A depreciating asset can, therefore, only be tangible assets that can decline in value (wear) over time or that have a limited useful life.
The Australian Taxation Office (ATO) should also be considered when defining depreciating assets. Why? It is the principal revenue collection body of the government. As a business or individual asset owner, you need to organise your tax records and submit your annual tax returns correctly. As you do so, you need to claim tax deductions for the depreciating assets you own. You should, therefore, know the types of depreciating assets you can claim tax deductions. According to ATO, trading stocks and land are not depreciating assets. Things like buildings, equipment, furniture, cars, etc., are considered depreciating assets.
What Then is Tax Depreciation?
Tax depreciation is that aspect of claiming tax deductions from depreciating assets. You should, however, know that you can only claim for tax deductions if the depreciating assets are being used for business purposes and are generating income.
How Do You Go About Determining How Much to Claim?
You might need to hire a company that specialises in tax depreciation. A quantity surveyor can also handle tax depreciation calculations.
A depreciation schedule is usually required. This is a report that lists down all depreciating assets owned by a business or individual. It is prepared by the tax depreciation company with the help of a quantity surveyor to get accurate figures. Your accountant is also needed in computing these figures.
Why Hire a Company to Make These Calculations and Not Do It Yourself?
First, you want the calculations to be accurate, meaning you get to claim the full amount. Don't risk obtaining the wrong figures.
Secondly, tax depreciation companies are up to date with ATO's terms and conditions and through experience, they know what to include in their calculations. If you try and do the calculations yourself, you might find it tedious and make many errors, which may interfere with how you carry out your other work.
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