How To Reduce Your Tax Bill With The Help Of Tax Depreciation?

In recent years, various incentive schemes have been phased out associated with tax relief. This has led taxpayers to refocus and consider looking at other ways of sheltering trading and rental profits.

In order to do this, you first need to know what is tax depreciation? The means by which a taxpaying entity writes off its qualifying capital expenditure on their factory and machinery against its profits which eventually reduces the level of taxation is known as tax depreciation.

So, if you want to reduce the tax on your factory and machinery then you would need to contact Australian Valuers as they will help you in tax depreciation in Gold Coast.

How to determine the number of capital allowances claim?

Capital allowances can be claimed from the 1st year for a period of 8 years when a taxpayer identifies the qualifying plant in a home. While the expenditure incurred on the construction of a property can attract a substantial amount of capital allowances given that most modern buildings have a high content of plant and machinery. Although the amount of the qualifying cost can vary considerably depending on the type of building, age, and specification. You can expect between 5-40% of the building cost in the case of a new build construction or 30-70% in the case of the fit-out cost of a premise. Expenditure that may qualify for such capital allowances may include air-conditioning, elevators, and alarms.

When a residential property is let fully furnished, capital allowances are also available against the rental income of such properties. Surely, the qualifying percentage will vary depending on the specification of the property and the level of the fit-out.

Tax Relief

A taxpayer who is carrying on a trade incurs expenditure on the provision of plant and machinery for the purpose of the trade and the plant and machinery are in use at the end of the taxpayer’s profits at the appropriate tax rate. These allowances are spread over a time span of 8 years at a rate of 12.5% per annum.

Although the tax saving is taken as the allowance that is multiplied by the marginal rate of tax. In some cases of individuals, the income tax rate can be up to 55% in some circumstances and in the case of a company, the tax rate would be 12.5%. while if the company is involved in letting property then the tax is 25% as the rental income is considered passive as opposed to trading income.  

Entitlement to claim capital allowances

In some cases where the taxpayer claims capital allowances against trading profits, the entitlement to claim the allowances is relatively straightforward. Capital allowances can be claimed if the taxpayer:

  1. A) Has incurred the expenditure and the plant belongs to them and
  2. B) It is in use for the purposes of the trade at the end of the taxpayer’s accounting period.

In cases, where landlord claiming capital allowances on plant and machinery, the question of entitlement to claim depends on which party to the lease bears the burden of wear and tear on the plant and machinery because burden of wear and tear is regarded as falling on the person who suffers the economic loss through the deterioration of the asset that cannot be made good through repairs.

While the entity who also bears the burden of wear and tear must also be responsible for replacing the asset in the event that it is no longer in working order. To determine who has the burden of wear and tear must be established by examining the terms of the leases. Revenue states in a recent briefing that it should be set out in the lease which party bears the burden of wear and tear.

Wrapping Up

So, in this way you can save on your tax with the help of tax depreciation. You can also get a quote from professionals like Australian Valuers which will help you in saving tax on your qualifying capital expenditure. Apart from that Australian Valuers will also give you advice on management rights in the Gold Coast.


Olive Smith

Olive Smith is a professional blogger who loves to write on numerous topics.

Leave a Reply