I have a question about depreciation. I have read that depreciation does not really save tax, it just puts it off, as you will have to pay the tax in the form of capital gains when you sell.
Am I right in saying that the person will still benifit by depreciating in two ways.
1)The tax saving on $10000 today is worth more than the tax on $10000 in the future due to inflation.
2)After owning an investestment for more than one year, you only pay tax on half the capital gains. So even though the buy price of you property is written down by the ammount you depreceiated it by, the tax payed when selling is halved.Those assumptions are correct.
Remember also that it’s only depreciation claimed on the building that impacts upon the CGT calculations. Depreciation claimed on the fixtures and fittings doesn’t come into it.
And remember that any property purchased after May 13 1997 must have the eligible depreciation claimable on the building deducted from the cost base upon sale whether it has been claimed or not. So you might as well claim it.
No, I have no idea how the ATO will police this. I am curious though.
Regards,
Scott
Tax Depreciation Schedules
Australia wide service
1300 660033
[email protected]
http://www.depreciator.com.auCheers Depreciator.
Maybe you have an answer for this question.
I hear a lot of people saying things like “Its easy to avoid CGT on your investment property. You just have to make it your primary place of residence for 1 year. You don’t even have to live there. You can leave the place vacant or have a mate rent it and just have your mail redirected.”
Is there any truth to this statement?HI Benali,
I appreciate the question was directed at Depreciator – but using the examples given you cannot avoid CGT.
By living in the property for some time only reduces some of your CGT liabilities as any gains made while the property was an IP will be taxed either using an apportining approach or through the valuation method.
You also need to remember that tax avoidance is illegal whereas minimisation is OK. Your examples are all about avoidance – certainly not a path I would go down.
CGT can be minimised by selling in a low or no income year.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958Thanks Derek. I am grateful for your response. You have confirmed my suspicions that the roumors I have heard are not a viable option. It is amazing how much misinformation is out there. Cheers for clearing it up.
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