The ATO has a “Guide to depreciation” which explains it.. and any accountant’s tax software creates one for you as well..

If you are unsure of a depreciation schedule, first its best to understand what depreciation is. I recommend any new or would be property investors to research this and if unsure, solicit a company to produce one for you as many people miss out on legitimate deductions in this area. They are called a Quantity Surveyors Report.

A spreadsheet is ideal and I am certain that someone will provide you with a good one. EZ-Rent works out depreciation for you as well.

In effect it is a list of items in your property (fittings, carpets, air conditioners, curtains, etc) that lose value over time due to normal use and wear and tear.

They are legitimate items which you can claim as an expense of your property investment, but you cannot simply claim the cost in one year. The ATO make you claim it over the lifetime of the depreciable item.

Whats the lifetime? The ATO produces guidelines, but also allows you some flexibility in determining this..

Take an oven for an example. A realistic time frame for an Oven’s lifetime may be 10 years. If that oven cost you $1000, you can only claim a certain percentage of its cost in the first year, second year, etc.

Now there are different ways to depreciate items (prime cost vs diminishing value + low value pool, etc) and your property itself (the dwelling) is also depreciatble too as its the land that goes up in value (generally the value of the dwelling itself goes down over time)

Hope that helps..

P

EZ-Rent. The freeware tax and cashflow simulator for Australian property investors. Version 2.5 out now!
http://www.ez-rent.com

This is also what EZ-Rent does and costs you no money so it certainly can’t hurt.. It allows you to add depreciable items and even simulate buying additional depreciable items later (for example you might want to replace all whitegoods at a future date)..

It also handles more than 1 property so you can do some complex cashflow simulations if you want to..

EZ-Rent. The freeware tax and cashflow simulator for Australian property investors. Version 2.5 out now!
http://www.ez-rent.com

Thanks Derek for suggesting ez-rent.

I can tell you that with EZ-Rent 2.5 I adjusted it to handle income tax rates based on the last federal budget. I also added a ‘bracket’ creep option so people can simulate future income tax scales being adjusted..

I don’t plan to add anymore features to EZ-Rent unless people have really compelling suggestions, but I will keep it up to date with any tax and depreciation rules that come by..

cheers

[email protected]

EZ-Rent. The freeware tax and cashflow simulator for Australian property investors. Version 2.5 out now!
http://www.ez-rent.com

There is a recent thread on the aus.invest newsgroup on this subject. See if this is helpful..

(watch out for line breaks in this big URL)

http://groups.google.com.au/group/aus.invest/browse_thread/thread/c54b5536ef08eb45/77332ccf0895e925?hl=en#77332ccf0895e925

cheers

[email protected]

EZ-Rent. The freeware tax and cashflow simulator for Australian property investors. Version 2.5 out now!
http://www.ez-rent.com

Mind you, if your property is close to breakeven cashflow, then you will make some very serious dents into your principal in that time if you do choose to pay principal.

In a period of less than spectacular capital gains going forward, its probably a sound strategy?

But one of TMA’s post finally clicked for me.. I assume that this is a scenario where TMA and others would have the poster consider an offset against an IO Loan (which I’m sure I read is doable?) As that way you can still pay down the principal while you do not need the cash for other purposes, yet have access to it later if you need it without ATO issues?

[email protected]

EZ-Rent. The freeware tax and cashflow simulator for Australian property investors. Version 2.5 out now!
http://www.ez-rent.com