Depreciation refers to two very different but related concepts:
1. The decrease in value of assets (fair value depreciation)
2. The allocation of the cost of assets to periods in which the assets are used (depreciation with the matching principle).
The former affects values of businesses and entities. The latter affects net income. Generally the cost is allocated, as depreciation expense, among the periods in which the asset is expected to be used. Such expense is recognized by businesses for financial reporting and tax purposes. Methods of computing depreciation may vary by asset for the same business. Methods and lives may be specified in accounting and/or tax rules in a country. Several standard methods of computing depreciation expense may be used, including fixed percentage, straight line, and declining balance methods. Depreciation expense generally begins when the asset is placed in service.
Tax depreciation, most income tax systems allow a tax deduction for recovery of the cost of assets used in a business or for the production of income. Such deductions are allowed for individuals and companies. Where the assets are consumed currently, the cost may be deducted currently as an expense or treated as part of cost of goods sold. The cost of assets not currently consumed generally must be deferred and recovered over time, such as through depreciation. Some systems permit full deduction of the cost, at least in part, in the year the assets are acquired. Other systems allow depreciation expense over some life using some depreciation method or percentage.
Rules vary highly by country, and may vary within a country based on type of asset or type of taxpayer. Many systems that specify depreciation lives and methods for financial reporting require the same lives and methods be used for tax purposes. Most tax systems provide different rules for real property (buildings, etc.) and personal property (equipment, etc.).
A tax depreciation report is a report that outlines the depreciation allowances that a property investor is entitled to. Come tax time, you simply present your depreciation report to the tax accounting completing your return. The specialty is providing you with a comprehensive depreciation report to enhance your property investment experience.
Tax depreciation schedules should include two main components:
1. Depreciation schedule for Fixtures and Fittings (Assets decline) All properties are eligible for depreciation of fixtures and fittings due to declining value of these assets, regardless of the age of the building.
2. Depreciation Schedule for Construction Costs (Capital Works deduction)
Construction Allowance Depreciable @ 4% or 2.5% for residential properties includes:
. Building Structure and Footings
. Plumbing and Drainage
. Electrical work including Switch Boards
. Ceramic Floor Tiles
. Internal and External Windows and Doors
. Built in kitchen Cupboards
. Bathroom and Sanitary Fixtures
. Concrete Swimming Pools and fixed Spas
. Concrete driveway or Paving
. Permanent Garden Sheds
. Fencing and Gates
. Builder's establishment costs
. Architects and Consultants fees
. Additions or extensions
. Refurbishment to internal structure e.g. new bathroom or new kitchen
Depreciation for Fixtures and Fittings include:
. Air-conditioners - split and wall units
. Blinds and Curtains e.g. Venetian
. Carpet, vinyl and floating timber flooring
. Ceiling Fans
. Dishwashers
. Furniture e.g. beds, lounges, chairs, tables etc.
. Hot water System
. Intercom Panels
. Light fittings (excluding hardwired)
. Range Hoods
. Roller Door Motors
. Refrigerators
. Stoves, cook tops and ovens
. Security System Panels
. Swimming Pool Pumps and Chlorination Systems
. T V Aerials amplifiers and Modulators
. Washing Machines
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