Depreciation Myths – Part 1: Tax Depreciation isn’t Worth it Due to Capital Gains Tax

G’day, Zac here. There are a lot of misunderstandings around depreciations – what can and can’t be claimed, when claims can be made, who can claim them, and so on. As this is my area of expertise at I’m going to start publishing a series on “Depreciation Myths” to help make what can be thought as complex, a little bit more simple.

Part 1: Tax Depreciation isn’t Worth it Due to Capital Gains Tax

The first myth which I would like to squash regarding tax depreciation is the notion that capital gains tax (CGT), which occurs at the disposal of your investment property, negates the savings made through claiming depreciation. The only instance where there is any truth to this statement is if you hold your investment property for less than 1 year as you are unable to claim the CGT 50% discount.

People get scared off by the fact that claiming tax depreciation does in fact decrease your cost base. Let’s just look at this on face value for a second, claiming tax depreciation INCREASES YOUR CAPITAL GAIN and enables a LARGER AFTER TAX PROFIT. If that is not enough, the increase in tax you pay at the capital gains event is less than half of the savings you have made through claiming tax depreciation over the life of your investment. Another win is the fact that plant and equipment which equates on average to approximately $20,000 worth of tax deductions is not taken into account within the capital gains calculations.

If I could ask you to take away three key points from this short article:

1. The savings you have made through claiming tax depreciation is more than double the increase in tax you pay at the capital gains event
2. It is important to hold your investment property for longer than 1 year so that you are eligible for the CGT 50% discount
3. Claiming tax depreciation increases your capital gain and increases your after tax profit

At Gleeson Quantity Surveyors we have teams on the ground all over Australia to help you maximise your savings.

For more information please don’t hesitate to email me on [email protected], visit gqs.com.au or call 1300 290 235 to speak to a tax specialist today!