There are two methods of depreciation to choose from: Prime Cost and Diminishing Value. Depreciation Schedules must contain both methods, but not all do. Your accountant will help you work out which method best suits you.
Effective Life Of Assets
Before we look at the two depreciation methods which the ATO allows it’s important we cover the concept of ‘effective life’ of an asset. The ATO sets the effective life of assets that are depreciable. This could be a Hot Water Heater, Air Conditioner, Carpet etc. If an asset has an effective life of 10 years then after 10 years it’s value reaches zero for the purposes of depreciation. The effective life of an asset is the same for both depreciation methods.
Prime Cost Depreciation Method
If you’re using the Prime Cost depreciation the value of assets will decrease by the same amount over the ‘effective life’ of the asset. E.g. An asset with an effective life of 10 years would depreciate at 10% per year for the 10 years.
Diminishing Value Depreciation Method
With the Diminishing Value method of depreciation the value of the assets decrease more rapidly in the first years than in the subsequent years. This tends to be the more commonly used depreciation method.
One thing to bear in mind is that when you start off using one method, you can’t swap to the other method. The treatment of Assets in the Low Value Pool also differs between the methods.
All Tax Depreciation Schedules from Depreciator include both the prime cost depreciation method and the diminishing value depreciation method.
To find out how much depreciation you may be able to claim on your investment property just give us a call on 1300 66 00 33. In a few minutes our friendly staff will provide a FREE estimate of your depreciation and a no-obligation quote to produce a Tax Depreciation Schedule for you.