Newby asking about Depreciation Schedules

[bam*bam]

Hello to all the members out there. I have recently made my first 'development' purchase and am wondering about depreciation schedules.

I have purchased a 4 bedroom home on a corner property, which I am in the process of sub dividing and building a new dwelling on the adjoining street frontage. I have looked into getting a depreciation schedule done for the existing house and subsequently the new one, but I am not properly understanding one thing. If I depreciate the new property (by 2.5% or whatever it is) won't it drop down my cost base, which affects me when it comes time to sell the property? Just to clarify, if I don't claim depreciation on a property that costs me $400k, when it comes time to sell I will pay CGT on the profit made over and beyond $400k. If I do claim depreciation, the I start paying CGT on the amount I have claimed from the $400k.

In effect the money which I will be claiming back each year, I will lose when I have to pay CGT on any future profit.

I am a little confused.

 

[buzzlightyear]

Yes, you are correct. Depreciation reduces your cost base when you sell.

However, purely on the time value of money, the benefits are worth more today, rather than in 'x' years when you might sell.

 

[Rob Williams]

In effect the money which I will be claiming back each year, I will lose when I have to pay CGT on any future profit.
I am a little confused.

Like an accountant once told me, the ATO always get's it's money one way or another.
If you don't sell, then it's not an issue.
Also, like Buzz says, inflation erodes the value over time, anyway.
See, no need to be confused

 

[craigb]

the home will not go up in value, it is the land content??
homes depreciate.

 

[stumunro]

The ATO will REDUCE the cost base when working out CGT REGARDLESS of whether or not you claimed depreciation.

 

[bam*bam]

The ATO will REDUCE the cost base when working out CGT REGARDLESS of whether or not you claimed depreciation.

How? Why? I have never heard of this.

Thanks to all of you for your reply's. The reason I posed this question is because I WILL be selling by the end of next year, so it is in my benefit to have the largest possible cost base.

 

[depreciator]

I've been away - up the coast at Forster. Gee, it's a nice place.

Re: the cost base thing. It's only depreciation claimed on the building that has any CGT implications. Depreciation claimed on the Assets (fixtures and fittings) doesn't come into it.
And of course with the 50% CGT discount you pay less again.

The ATO will REDUCE the cost base when working out CGT REGARDLESS of whether or not you claimed depreciation.

This was always pretty dumb. And more or less impossible to enforce. The ATO realised this in early 07 I think and tossed that silly rule out.

Scott

 

[stumunro]

This was always pretty dumb. And more or less impossible to enforce. The ATO realised this in early 07 I think and tossed that silly rule out.

Scott

Have to agree with the dumbness, and only hope they have come to their senses!

can anyone clarify?

 

[depreciator]

It definitely went. I'm just not sure exactly when. I think the NTAA told us.