Australians are expected to file their tax returns every year by October 31st for the financial year ending on June 30th. This should give you plenty of time to learn about the many different deductions that you can claim to get more of your tax returns. In particular, if you own a depreciating asset, you can claim the decline in value of the asset in your tax return.
What Is a Depreciating Asset?
A depreciating asset is best defined as an asset that has a limited effective life. The asset can reasonably be expected to decline in value over the years. A good example of this kind of asset would be a car. From the moment that you drive your car off the lot, the value of the car decreases by at least 11%. There are some limitations in regard to the type of depreciating assets that you can claim. An asset that is claimed elsewhere on your tax return, such as a work-related expense, will not count.
Who Can Claim the Decline in Value of a Depreciating Asset?
Not everyone can claim the decline in value of a depreciating value on their tax return. Only the holder of the depreciating asset can claim the deduction. In the event that there is more than one owner, each owner will need to calculate their interest in the asset.
How Do You Calculate the Decline in Value?
There are two different methods you can use to calculate the decline in value of a depreciating asset: the diminishing value method and the prime cost method.
The diminishing value method basically assumes that the decline in value of the asset each year is a constant percentage of the base value. If you opt to go with this value, the decline in value will get progressively smaller each year.
The prime cost assumes the value of the asset will depreciate constantly over its entire life, and as a result, the asset will experience a constant decline in value each year.
You are free to choose either method for calculating the decline in value of each asset; however, once you have chosen a particular method for an asset, you cannot switch to using another method at a later date. For the exact formulas, speak with a tax refund agent since the formulas will change based on when the asset was acquired and when the depreciating value is claimed.
If you’re unsure of how to claim a depreciating value as a deduction on your tax return, speak with a tax return agent. By taking advantage of all the deductions that are available to you, you can maximize the amount you’ll receive or minimize the amount you owe