5 Key Points That Will Affect Capital Gain Tax (CGT) While Claiming Depreciation

We constantly get to listen from investors their varying thoughts about depreciation. Some investors believe that they should refrain from claiming depreciation. The reason why they think against claiming depreciation is they believe that they will have to pay it back while selling their property. It happens in such scenarios when they lack awareness about Australian tax depreciation. It is partly correct that claiming depreciation while purchasing an investment property may impact future CGT calculations. The crucial thing is that you must comprehend how it takes place. Some changes took place in the depreciation rule in the 2017 budget. You must read all such changes in detail.

Given below are some key points that will let you know how claiming depreciation will impact CGT:

1. Not All Depreciation Claimed Can Be Subtracted From Cost Base

Only Division 43 also known as capital allowance claims can be subtracted from base cost while calculating CGT. You must be wondering what is CGT?  CGT is a tax that you pay on capital gains. Investors and accountants frequently ignore this fact. Depreciation related to plant and equipment items known as Division 40 deductions is not deducted from the cost base. When Division 40 claims are subtracted it will ensure that profit is not exaggerated and tax is not paid beyond the set limit.

2. For Used Properties, Division 40 Will Be Offset Against CGT during Sale

As per May 2017 government ruling, an investor can’t claim depreciation for used residential property assets as a yearly tax deduction. However, an investor will not lose such deductions permanently. The investors can claim the accrued deductions in entirety as a CGT offset. You need to prepare depreciation schedule for investment property. New property owners known as first owners will be able to claim Division 40 deductions yearly.

3. CGT Reductions and Exemptions

In some specific situations, investors are entitled to some specific CGT reductions and exemptions. It includes the 50 percent discount for properties possessed by individuals for the above 12 months period. In such scenarios, the influence of subtracting earlier claimed capital allowance subtractions from the cost base is deducted.

4. Purchasing Power of Money over a Period of Time

The cash amount that you possess right now will always be worth more than a similar amount of money you have in the future. For instance, if you have $500 cash in hand in 2012, its value will be more than 5 years down the line in 2017 with a similar amount of savings. Investors will remain in a better position if they seek the depreciation advantages and enhance cash flow now. Investors may save that amount of money on a profitable sales transaction at some time in the future. You need to prepare investment property depreciation schedule ATO as per the guidelines.

5. Opportunity Cost

The additional cash flow that the investors will create by way of claiming depreciation can be used for paying debts. You may also reinvest it at some point in the future. This will give the cash today even a much higher value than money saved at a sale.


Therefore, we can conclude here that you must have understood with the help of the above points how claiming depreciation will impact CGT. If you come across any obstacles while calculating depreciation for tax purposes, you may seek the services of professionals. It is important to note that depreciation may impact your cost base. Plant and equipment depreciation may bring down or increase your cost base. It will also depend on the present situation. Plant and equipment may include things like fixtures and fittings and carpet.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *