Decline In Value Of Depreciating Assets (previously known as depreciation)
If your rental property is furnished with items such as carpets, curtains, blinds, air conditioners, ovens, rangehoods, cooktops, furniture, white goods, garage motors, irrigation control panels, etc the cost of these items are not immediately deductible over 1 year. Provided these items are used or installed ready for use for the purpose of deriving rental income, you can claim a deduction known as the “decline in value” of these depreciable assets over a number of years representing the asset’s effective or useful life.
Immediate Deductions
An immediate deduction applies to all depreciable/ capital items of $300 value or less for business purposes. Some items that are fitted in a rental property such as built in cupboards, fencing and retaining walls, are not regarded as separate assets in their own right. However, a capital works deduction may be allowed for some of these items.
Capital Works (Special Building Write-Off Deduction)
You may be entitled to claim a capital works deduction, which is an annual straight line amount, based on the original costs of construction, alteration, extension or improvement to the income producing building. The annual depreciation rate, which is either 4% or 2.5% is determined principally by when the construction started.
Depreciation Methods
There are two main methods of depreciating items of plant:
1. Prime Cost Method
Under the Prime Cost Method or straight line method of depreciation, a qualifying asset is depreciated at the same rate over it’s effective life eg If an asset costs $1,000 and the depreciation rate was 10%, each year for 10 years the deduction would be $100.
2. Diminishing Value Method
Under the Diminishing Value Method or accelerated form of depreciation, a qualifying asset is depreciated at a higher rate on its opening reducing balance. eg If an asset costs $1,000 and the depreciation rate was 20%, the first year the deduction would be $200.In year two it would be $160 etc etc.
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