What’s the difference between Book Depreciation and Tax Depreciation

Depreciation and capital allowance are the biggest tax deductions available to property investors in Australia. Every year scores of property investors end up with more tax than they were supposed to. It happens because they prepare wrong property depreciation reports and fail to claim a tax deduction for depreciation of their investment property. Depreciation can be described as a vital accounting terminology that is linked to the wear and tear of an asset over a period of time. You can claim depreciation as a tax deduction for residential and commercial investment properties.

Below you will discover the differences between book depreciation and tax depreciation:

What is book depreciation?

Book depreciation can be described as the amount registered in a company’s general ledger accounts. Book depreciation is always reported on the specific company’s financial statements. It is worth noting that book depreciation is based on the matching principle of accounting. In case you face difficulty in calculating the book depreciation, grab Deppro contact number and call their professionals right away.

An Instance of book depreciation:

Book depreciation can be best understood with an example: a tool used in a business organisation was purchased at a cost of $500,000. It has a life cycle of 10 years. And, the organisation has accepted that there will be no salvage value at the end of 10 years. The yearly depreciation expenditure registered in the general ledger accounts and specified in the financial statements will remain $50,000 every year. Every year the organisation is matching $50,000 of the tool’s expenditure to that year’s revenues that are earned due to that tool.

What is tax depreciation?

Tax depreciation is the amount specified in the company’s income tax returns. Tax guidelines mention the overall life of assets and also permit accelerated depreciation or instant offsetting of specific amounts on a few organisations’ tax returns. You will not notice any guidelines that may require tax depreciation to be similar to book depreciation in a particular year. Property investors in Australia hire quantity surveyors for correct property valuation.

An Instance of tax depreciation:

Imagine, an organisation buys a tool worth $500,000. The regulations require the tool to be depreciated for some years. The regulations will also permit an accelerated method of depreciation. These regulations will lead the organisation to get larger depreciation deductions earlier and get the income tax savings earlier too.

Difference between book depreciation and tax depreciation

The major difference between book depreciation and tax depreciation is timing. It includes the timing of when the price of an asset will reflect as depreciation expenditure on the company’s financial statement against depreciation expenditure on the organisation’s income tax return. Therefore, the depreciation expenditure will remain different in each year. However, the total of all years’ depreciation expenditure for any asset is expected to add up the same total. The organisation needs to maintain depreciation records for financial statement depreciation. The organisation should also need to maintain depreciation records for the tax return depreciation.


Tax depreciation is calculated for the purpose of income tax. You may also seek a Deppro review for more clarification on tax depreciation and book depreciation. Book depreciation is prepared in accordance with the matching concept. In other words, to prepare book depreciation the revenue and expenditures produced must be recognised and registered for a similar accounting period. The organisation needs to maintain two kinds of records for depreciation namely for financial reporting purpose and income tax purposes.

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