A common question among property investors is whether depreciation is worth claiming if it will later affect their Capital Gains Tax (CGT) when it comes time to sell one day.

In basic terms, CGT is the tax payable on the difference between what it cost you to purchase an asset and the amount you received when you disposed of it. When you sell a property, this triggers what is called a ‘CGT event’ and the owner will either make a capital gain or loss on the property. To calculate your capital gain or loss, use the following method:

Selling price minus transaction costs MINUS Original purchase price plus associated transaction costs EQUALS Capital gain (or loss)


So how does depreciation affect this?

Property owners are able to claim depreciation for both capital works and plant and equipment. The capital works deductions will reduce the cost base of the property, which will add to the capital gain and therefore increase the amount of CGT applicable for the owner of the property. Plant and equipment items can also generate a capital gain or loss, but these are calculated separately.

So is it worth depreciating, if this will increase the CGT down the track?

The short answer is yes. During the term of ownership, capital works and plant and equipment can be claimed as a deduction at the investor’s marginal tax rate. These deductions will reduce tax liabilities, therefore generating additional cash flow for the investor each year.

When a property is sold, if the owner has held the property in their name for more than twelve months, the owner will be eligible for a 50 per cent exemption. This means that only 50 per cent of the capital works deductions during ownership will carry through to the ‘CGT event’, making it far better for a property investor to claim the capital works deductions and take advantage of the additional cash flow during ownership. Depreciation claims also provide an opportunity for the property owner to invest further or reduce loan liabilities.

To learn more about the 50 per cent CGT exemption and other exemptions that apply, click here.

Please note that this is considered general advice only and does not take into consideration your specific objectives, needs or financial situation. The information above mentioned may not be appropriate to your individual needs and you should seek advice from your financial adviser before making any investment decisions. Please speak to your Ulton Adviser if you require any advice specific to your financial situation.

Article provided by BMT Tax Depreciation. Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.

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