worth getting depreciation schedule

[ugotadollar4me]

It is still not clear to me on how it all works.

Another example,

Purchase price $400,000

Renovation costs including holding and stamp duty etc $30,000

Then depriciation schedule is done $50,000 of depricitable items.

Owned over 1 year, 50% capital gains free

What figure do I pay tax on???

$35,000?
Or
$10,000?
Or a different figure?

 

[mwiriadi]

It is still not clear to me on how it all works.

Another example,

Purchase price $400,000

Renovation costs including holding and stamp duty etc $30,000

Then depriciation schedule is done $50,000 of depricitable items.

Owned over 1 year, 50% capital gains free

What figure do I pay tax on???

$35,000?
Or
$10,000?
Or a different figure?

Ignoring the renovation costs for a second you would pay as follows:

$400K Less depreciation of $50K so cost is now $350K
If owned for more than 1 year you will pay tax on 50% of your CGT impact.

Assuming you sell for $450K Your CGT would be $100K * 50% would be $50K.

If you add additional capital items such as an additional $50K that would increase the cost base of the property to $400K which would mean you would pay $50K * 50% meaning $25K at your marginal rate.

On another side note if you get your depreciation schedule you can reduce your tax paid at each pay check meaning you can increase your after tax income.

To read more have a look at the ATO website

 

[mikezen]

is it true that the cost for the deprec schedule to be done cant be claimed as a tax expense?

 

[GaryT]

Ignoring the renovation costs for a second you would pay as follows:

$400K Less depreciation of $50K so cost is now $350K
If owned for more than 1 year you will pay tax on 50% of your CGT impact.

Assuming you sell for $450K Your CGT would be $100K * 50% would be $50K.

If you add additional capital items such as an additional $50K that would increase the cost base of the property to $400K which would mean you would pay $50K * 50% meaning $25K at your marginal rate.

I minor omission is that the sale price for CGT will be $450K less the then value of the depreciated assets (usually the WDV).

Also Building Write Off is treated separably and specifically so the $50K referred to here is for depreciable assets only.

 

[coastymike]

I think many accountants get the cgt calcs wrong. Actually I know they get it wrong because seen it during audits for previous clients who didnt get us to do the calcs.

A lot of them just take the purchase price off the sales price and then minus the division 43 capital allowances. Most never allocate the depreciable assets and therefore understate the cgt.

A huge audit area I expect in years to come as lots of potential revenue there for the taking.

 

[mwiriadi]

is it true that the cost for the deprec schedule to be done cant be claimed as a tax expense?

Yes you can claim it as a tax deduction as it was derived for generating taxable income (assumption).

In regards to the WDV of the assets yes I did forget that but it was more a generic response to get the point across. I don't work in tax but I'm an accountant so there are numerous other things that can occur such as black hole expenses which we haven't discussed.

Suffice to say if you're planning on investing in property and getting a depreciation schedule done then visit a reputable tax accountant as they will assist you greatly for tax purposes. In addition the cost of the tax accountant is a deduction in the year it was paid so it's not all that bad.

I think the point of the post was whether it is worth getting the schedule done and in my humble opinion it is.