Melbourne Tax Depreciation - How to Reduce Tax Bill

The tax relief that is associated with different designated incentive schemes in recent years has been phased out. This has caused taxpayers to change their focus and consider using other ways of sheltering, rental, or trading profits or tax depreciation.

What Is Tax Depreciation?

It is a means that a taxpayer reduces his level of taxation by writing off his capital expenditure on plant and machinery against his profits. This kind of claim for depreciation is typically referred to as capital allowances. Let us talk about the plant content, particularly in buildings. Remember that you cannot claim capital allowances against buildings.

Know the Capital Allowances To Claim

As a taxpayer, when you identify the qualifying plant in your building, you are able to claim capital allowances from year one up to eight years.  Expenditure that happened on the acquisition or construction of a property can get a substantial amount of capital allowances provided that most modern buildings come with a high plant and machinery content. 

The amount of the qualifying cost varies depending on the building type, specification, and age. In the case of new construction, expect a range between 5% and 40% of the building cost, or 30% to 70% for a premise fit-out cost. Examples of expenditure that may qualify for capital allowances are alarms, elevators, and air-conditioning.

In the case of residential property that is fully furnished, capital allowances are available against the rental income. But, the qualifying percentage also varies depending on the property type as well as the level of the fit-out.

Entitlement to Claim Capital Allowances

When it comes to trading profits, a taxpayer who is claiming capital allowances against them, the right to claim the allowances is quite simple. As a taxpayer, you may claim capital allowances if:

·         The plant belongs to you and you have incurred the expenditure.

·         At the end of your accounting period as a taxpayer, the plant is in use for trade purposes.

In the case of Melbourne tax depreciation of a landlord that will claim capital allowances on plant and machinery, the right to claim depends on the party to the lease that bears the accountability of wear and tear that happens on the plant and machinery. The wear and tear burden and responsibility are considered as falling on the person who experiences and suffers the economic loss due to the deterioration of the asset that cannot be repaired to make good again.

In addition, in the event that it is no longer functioning well, someone who carries the burden of wear and tear should also be accountable for replacing the asset. By examining the terms of the leases, it can help determine and establish who is responsible for the wear and tear. Revenue has declared that for clarity in a recent briefing that it has to be set out in the lease, wherein the party bears the responsibility of wear and tear.

Being a property owner, if you are looking for some Melbourne tax depreciation relief, it is definitely an area worth considering.