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Why Depreciation

Why Depreciation?

I met lots of investors, particular those from Asian countries, who were keen on buying investment properties, but never claim any depreciation on them. They don’t know depreciation is an effective way to reduce their income tax from the settlement date and it has been widely used by local investors for ages.

Australia is encouraging people to invest; hence, the Tax Law introduced depreciation to all investors. So, what’s depreciation? A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Such declined value is called the depreciation entitlement. Depreciation is a loss on the book value only and it can be added to the annual expense of the investment. Therefore, it can bring a huge tax deductible amount to the asset owner each year. The latter need not pay extra money but get huge tax benefits in the end. With this concept, none of the other expenses (such as interests, maintenance, rates, etc.) would have such advantage (without paying a cent first but get $$$ back automatically).

Through depreciation, investors can get extra after-tax income as well as improved cash flow. I encourage every investor to apply it properly as it is an important tool to cut down your total tax amount and speed up the growth of your wealth.

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