The intentions of the property investor will determine which depreciation method will be most suitable for them. By determining your strategy you will need to consider how long you intend to hold the property and if you will benefit greater from higher deductions now or in later years.
Two methods can be applied when depreciating property, the Diminishing Value (DV) and Prime Cost (PC) method.
Why Choose the DV Method?
The DV Method assumes that the value of a depreciating asset decreases more in the early years of its effective life.
- Items to the value of $300 or less can be claimed as an immediate deduction.
- Low value and low cost pooling for assets costing $1,000 or less – accelerating your claim as these items can be claimed at 18.75%, in the first year and at 37.5% for each subsequent year after.
If your aim is to receive a greater return on your investment i.e. achieve greater deductions as quickly as possible – then this is the right choice, e.g. if you are a short term investor.
Why Choose the PC Method?
The prime cost method assumes that the value of a depreciating asset decreases uniformly over its effective life.
- Allows investors to rely on a more consistent depreciation claim each year – a uniform rate until the full value of the assets are claimed, providing investors with a constant projection of their tax deductions.
- Suitable for investors looking to maximise their depreciation claim in later years, e.g. Investors who will live in their property for the first few years, those whose income is expected to substantially increase in the future or businesses.
Your accountant will be able to provide you with tailored advice, as they will be aware of your financial structure.