Investors ask: Depreciation and capital gains

Investors ask: Depreciation and capital gains

Tracey Lunniss
tax-and-legal-advice
1 minute read

Investors ask: Depreciation and capital gains

by Tracey Lunniss
April 04, 2014

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.

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

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