Tax Depreciation - Boon for Business

Some people view taxes the hard way in relation to their businesses. The powers-that-be may have anticipated such views and did some counter measures to alleviate the difficulties. Tax depreciation Sydney is one of them.

In simple parlance, this is the depreciation that can be listed as an expense on a tax return for a given reporting period under applicable tax laws. Finally, it is used to reduce the amount of taxable income reported by business.

Deductions

The depreciation expenses are tax deductions which are allowed under certain related tax rules. These are non-cash expenses simply because they are not actual cash outflow. They are actually charges used to recover an asset’s earlier cash purchase.

In claiming the tax deductions, companies need to apply the non-cash depreciation expenses against the income that is taxable. This will lower the amount of the payable tax. Different assets also have different lengths of taxable life based on relevant tax rules.

For reasons that the value of an asset is allocated and expensed over the period it will be in use, the shorter the asset’s taxable life, the greater are the taxable deductions for the company. Depreciating assets over a shorter period with higher depreciation expenses will not only provide higher tax benefits, it will also encourage businesses to replace the assets faster.

Deduction choices

Companies are also entitled to elect among the different depreciation methods which they would like. This is about the amount of depreciation expense they would want to charge each year based on the amount of revenue for the same year.

This is due to the fact that a company’s revenues may change over the life of the asset they are using. Matching the amounts of depreciation deductions with the changing revenues can help the company maximize its tax benefits.

Declining balance method

One example is that a company may use the declining balance depreciation methods if it can anticipated that there are potentially higher revenues from a new asset. The declining balance method is an accelerated depreciation method allocating larger amounts of depreciation expenses to earlier years.

The result is that a company can offset its expected higher revenues in the earlier years with larger depreciation expenses in the same periods. All these are to reduce the payments of taxes.

Asset disposal

Depreciating assets helps defer a company's tax payments but may not completely eliminate them in the end. A company may not be able to fully keep the tax savings from this practice.

On the other hand, the selling of a depreciated asset (also called asset disposal) may also involve capital gains. This is in addition to the typical ordinary income gain in the form of depreciation recapture.

Capital gains

The proceeds from the sales of the assets in excess of the sum of the salvage value and the full amount of the recaptured depreciation deductions are actually considered capital gains and are taxed at a more favorable rate.

Depending on the sales value, there may not be any capital gains. A lower sales value helps save the company from paying taxes on recaptured depreciation deductions. All these on are within tax depreciation Sydney of assets. 

Investment Property Calculator - Amount Approximations

Investing in property is one very good business decision should you make your mind up to have your money grow. However, like all big business actions, investing needs some planning, consulting, and other preparatory work like the investment property calculator. 

In a sentence, this calculator can provide you an estimate on how much an investment property will cost.

It can give you an estimate of the amount of cash you will need (or maybe receive for a given period) so you can fund your investment property. Aside from this, it can also give you an indication of the changes in the amount of taxes you will have to pay because of your ownership of the property.

When you combine these two important considerations, it can give you a measure of the after-tax profit (or loss) associated with owning your property.

Additional details

Among its many other details, the calculator combines the cost operating revenue and the cash operating expenses with the change in the amount of income tax paid. This is to measure the net change in your income mainly due to your ownership of the investment property.

However, you need to recognize that these results are rough estimates.  You should not treat them as financial advice. It is always advisable to consult your financial adviser before making any investment decisions.

With the use of the property calculator, there are many assumptions that you need to follow in order to get the results, all of which are approximations that are nearest to the actual figures. 

Assumptions

The first of these assumptions is that your cash operating expenses are assumed to be evenly spread throughout the year. In other words, your cash operating expenses are the same for each month of your first year.

Further, it is assumed that you have an interest only loan. This means your loan repayments only consist of the interest for the period. They should be deductible for tax purposes.

Tax paid

During the calculations, “change in tax paid” means only the marginal tax that is applicable to Australian residents are used. The calculator does not include the Medicare Levy (1.5%). However, it does not take any other factor that can influence the amount of tax to be paid.

(This would include such items as HECS contributions, any rebates, deductions, levies and surcharges into account.)

Other considerations

A building allowance is calculated for investment properties built after July 18, 1985. Those whose constructions falls between 19/7/85 and 15/9/1987, the building allowance is 4% of the cost fro 25 years after it had been built.

For properties where construction began in 15/9/87, the building allowance is 2.5% of the construction cost, for 40 years after construction.

The calculator does not consider the depreciation allowance from the depreciable items contained in the investment property. This may accrue to the owner of the investment property.

Cash flow is the revenue in cash, minus the expenses. This is rental income minus the loan repayments and operating expenses. For the Brisbane investment property calculator, you will receive this amount if it is positive or the amount you pay if this is negative.

Depreciation Schedule - Getting your Claimed Deduction

Depreciation is, by all means, a non-cash deduction where investors do not receive money back but only by claiming deduction on the property. The downfall of the worth of asset in a span of time is caused through usage and consumption. This depreciation on the part of the investors can be claimed in their income tax return by getting an ATO compliant Brisbane Depreciation Schedule.

Most people make the common mistake by not claiming for property depreciation either due to inability to understand its importance or non-realization of how much to claim. Sometimes, they simply are not aware of it even after all the years of tax-paying and all.

There is a trend now that properties for sale are gradually dropping. Many people seemed to be holding off from selling and gradually that number for sale is dropping. In a way, it is a positive side and for the last 6 months, there is a 7.85 decrease in properties for sale.

Depreciation allowances

These depreciation allowances are present in two types of assets. The first one is on the things which are used inside buildings like gas tops, air conditioners, furniture pieces, heating systems and many others more.

The second on the capital work items like bricks, mortar, wall plaster, wirings (which are used at the time of extensions, renovations, and repair work on the building.

Asset rates

These rates on assets are different depending on the nature, the size, and age of the property. (These figures have been undergoing many changes as mandated by ATO.) The rates also keep on changing from time to time.

Our specialized quantity surveyors have to keep themselves updated so they can provide the public with the most accurate and most efficient report.

Commitments

Some accounting shops have been committing that the schedules for depreciation prepared by their own but qualified quantity surveyors can change the down beat cash flow into an upbeat cash flow.

Quantity surveyors will visit your property in order to do some physical assessment on all the depreciable assets. This way, assets are all accounted for depreciation and you get the maximum cast return through tax deductions.

The process

The process is slated to be finished up in two to three weeks time. This is where the surveyors are allowed to work unhampered to ensure that not much time is wasted during the whole procedure. 

The offer continues that the best and most affordable service will be done by dedicated surveyors. The promise is to make sure the clients get an accurate and error-free depreciation report. Added to that, there will be not much hassle and problems during the process. 

Some notes

According to the new Tax Agent Services regime, all people doing depreciation schedules have to be registered as tax agents. There had been incidents where some quantity surveying companies are taking short cuts by using untrained people to work on cursory inspections and gather information.

ATO (Australian Tax Office) rules that only people with full qualifications from the industry body (Australian Institute of Quantity Surveyors) which allows them to discharge the full range of Brisbane depreciation schedule activities.