Investors ask: Depreciation and capital gains
Q. I have a thorough depreciation schedule and have been claiming as advised. I was recently told that doing this affects my capital gains when I sell the property! Is this true?
A.It’s only partly true that depreciation will affect your capital gains when you sell.
To continue reading the rest of this article, please log in.
Create free account to get unlimited news articles and more!
There are two components to depreciation calculations – the capital, and the plant and articles – and each has a different effect.
The plant and articles component does not affect the capital gains calculation at all and is purely a tax benefit.
The capital depreciation claimed does have a bearing on the capital gains calculations; however, under current legislation, you will not be paying it all back.
For example, if you have claimed $40,000 in capital depreciation over the period before you sell the property, this $40,000 will be taken from your cost base. So, if you bought the property for $360,000, for capital gains calculations it would now be assumed that you purchased it for $320,000.
Hence, you would be paying capital gains tax on the $40,000.
What does this really mean? You will pay 30 per cent capital gains tax against 50 per cent of the profit, which means that you would be paying $6,000 in capital gains tax against the $40,000 in capital depreciation claimed.
Tracey Lunniss, associate director, TSL Project Services
