Tax Time

Hi Cookie Monster,

Well, assuming the depreciation relates to the investment property, then the expense is connected to the receipt of rental income – so the accountant has it right – it definitely goes with all the other expenses relating to the property.

Where else do you think the depreciation would go?

Would you like me to tell you exactly what labels the capital works and capital allowances deductions go under on the rental property schedule?

If you pay peanuts you get monkeys – what if you pay cookies?  I will check your return for cookies if you like.  I am serious.

Good luck

Evolve

Hi KarlM
It can seem confusing because you have not had to pay out cash for this expense but it is sometimes referred as a paper expense.
If you are depreciating the cost of construction it is an expense generated by a paper entry loss. Now this seems like money for nothing but in 40 years time you could be required to build a replacement building and also each year you claim this your cost base is decreased by what you claimed as building depreciation. So if you sell later on your capital gain will be increased because your cost base has been decreased by building depreciation.
If you are depreciating fittings in the house say carpet as an example. At some time in the future you are going to need to replace the carpet. So you are claiming the cost of the carpet so that at the end of the effective life of the carpet you will need to replace it and then start depreciating the new carpet for its effective life span.
With the carpet or curtains or hot water service , ect you are saving the tax department money by depreciating the expense. If say in an alternative parallel universe the expense was able to be claimed in the year you replaced it then the tax department would have to give you a bigger deduction where as by only being able to claim depreciation a partial (smaller) amount each year is claimed and this saves the tax office from having to pay more for the expense through a deduction in your tax return.

If you want to take this further imagine in another hypothetical alternative parallel universe that you could claim the whole construction costs in the year it occurred what effect would that have on the tax system.
Under the Keating Government 1992 – 1998 they did change this to 5 years under a previously  now abolished (Ralph report – tax reforms 1998) capital accelerated scheme.  This was originally devised to increase building by developers during the recession we had to have.

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