Glossary of Terms - Tax Depreciation

Term	Definition
Aggregated Turnover	The income earned from running your business, plus the annual income of any associated businesses.
Australian Taxation Office	The Australian Government’s principal revenue collection agency. It administers the Australian federal taxation system and superannuation legislation. Often referred to as ATO.
Australian Institute of Quantity Surveyors	A professional standards body that ensures practicing Quantity Surveyors maintain the highest level of professionalism. Sometimes referred to as AIQS.
Asset	An item (most often tangible) owned by a person or company, generally a dwelling, fit-out or property.
Asset Register	A record of items considered worthy of identification as discrete assets. An asset register includes information about each asset, such as type of construction, technical details, date of acquisition, original cost, accumulated depreciation, written down value, etc.
Capital Allowance	Capital allowance is a tax deduction claimable for the decline in value (depreciation) of capital assets, such as your investment property.
Capital Gains Tax	Capital gains tax (CGT) is the tax you pay on profits from disposing of assets including investments, such as property, shares and crypto assets.
Capital Loss Schedule	The capital loss schedule includes all the items in your property that are no longer eligible to be claimed for depreciation. They can, however, be claimed as a capital loss if you scrap them.
Capital Works Deduction	This is the building itself as well as any capital improvements done on the building i.e. the construction expenses. This typically includes the tiling, walls, roof, garage etc. Also known as Division 43.
Capital Works Report	This report captures the ‘Capital Works or Division 43’ assets within a property. Namely, when a client needs a depreciation report for an existing property they have purchased, it will revert to a CWS. A CWS is characterised by the initial construction cost + any capital improvements (No equipment), spread across 40 years at 2.5%.
Cash Flow	The net amount of money an individual or entity receives.
Commercial Property	Properties used to generate an income, either by running a business or organisation and typically consists of offices, warehouses & retail property.
Cosmetic renovation	Generally visual in nature and cheaper than structural renovations. Examples include painting, patching up wall cracks, adding new carpet and replacing door handles.
Depreciable Asset	An asset expected to decline in value over time, which is eligible for depreciation.
Depreciation Schedule	A report prepared by a Quantity Surveyor that outlines the available tax deductions for the depreciation of an investment property’s structure and fixtures.
Diminishing Value Method	One of two methods used to calculate depreciation for plant and equipment assets. The diminishing value method uses the asset’s base value to calculate the decline in an asset’s value.
Division 40	A deduction that can be claimed for the depreciation of assets that are mechanical or easily removed from a property. Also known as plant and equipment depreciation.
Division 43	A deduction that can be claimed for the depreciation of a building, structural improvements and fixed assets. Also known as a Capital Works Deduction.
Effective Life	A depreciating asset is an asset that has a limited effective life, and that can reasonably be expected to decline in value over the time that it is used.
Fit Out	The costs associated with bringing up a building fit for a specific purpose which may include a variety of trades such as manufacturing, office, warehousing or retail.
Full Expensing	A temporary policy that allows businesses with an aggregated turnover of less than $5 billion to deduct the full cost of new eligible depreciating assets.
Gross Floor Area	Gross Floor Area, or GFA, is the total property area (in m2) and is measured between the exterior walls of the building(s). This may be derived from the sum of Fully Enclosed Covered Area (FECA) & Unenclosed Covered Area (UCA).
Holding Costs	Ongoing expenses incurred while owning an investment property, including loan interest, rates, and insurance, which can affect cash flow and tax deductions.
Improvements	Any additions or alterations to a property that increase its value. When determining tax liabilities, valuers often assess the value of improvements separately from the original structure.
Initial Yield	The initial yield is the percentage return on price or value derived from current net passing income. This is merely a statement of the ratio between the initial income and price or capital value, expressed as a percentage.
Instant Asset Write-Off	The instant asset write-off allows business owners to claim a full deduction for an asset, up to a certain amount, in the same income year as the asset was purchased.
Investment Property	Real estate purchased with the intention of generating rental income or capital growth, often eligible for depreciation and tax deductions.
Low-Value Pool	Low-value pooling allows investors to group qualifying assets in a pool that can be depreciated at an accelerated rate, rather than at each asset’s individual rate. Assets in the low-value pool can be claimed at a rate of 18.75 per cent in the year of purchase, then 37.5 per cent every year following.
Medium-Size Business	An individual, partnership, company or trust with an annual aggregated turnover of $10 million to less than $50 million.
Negative Cash Flow	Investment properties can sometimes generate negative cash flow, which means you’re required to put money in each year to cover the difference between the total cost of the property (including interest repayments, rates, insurance, maintenance, etc.)
Negative Gearing	When you’ve borrowed money to buy an investment property and the rental income is less than your interest and expenses.
Off-the-Plan Purchase	Buying a property before it is constructed, often at a lower price, with tax benefits such as depreciation available once the property is completed.
Plant & Equipment	The easily removable fixtures and fittings found within a residential investment or commercial property.
Positive Cash Flow	Property is an investment property where the annual rent exceeds the total annual expenses, after tax deductions and depreciation are taken into account. In other words, this is a type of investment asset that “pays you” to own it.
Positive Gearing	When you’ve borrowed money to buy an investment property, and the rental income is higher than your interest and expenses.
Prime Cost Method	One of two methods used to calculate depreciation for plant and equipment assets. The prime cost method calculates the decline of an asset’s value as a constant percentage of an asset’s cost and reflect a uniform decline in value over time.
Quantity Surveyor	A qualified professional who specialises in building measurement and estimating the value of construction costs. One of only a few professions recognised by the ATO as having the required skills to calculate the cost of items for the purposes of depreciation.
Replacement Cost	The estimated cost at the date of valuation to replace or build the existing improvements to provide the same standard of utility and appointments, using the most comparable modern materials and construction methods.
Residential Investment Property	A property purchased with the intention of generating a return through renting out or capital growth (or both).
Residual Value	The value remaining after all expenses, including building costs and the developer’s profit, have been deducted from the projected value of the completed property.
Return on Investment (ROI)	One of many ratios used to measure profitability where the return on each dollar invested by the owner is measured.
Scrapping Schedule	A scrapping schedule is a separate schedule within your depreciation report listing all assets that have been replaced during the life of the rental period. When an item is replaced with a new item, but still has some residual value (written down value), you can claim this leftover value as a lump sum deduction in the year the item was replaced.
Site Inspection	A qualified quantity surveyor will physically inspect your property to take measurements, photos and notes. This is to guarantee maximum tax deductions are achieved.
Small Business	An individual, partnership, company or trust with an annual aggregated turnover of less than $10 million.
Strata Plan	The registered plan of a strata title property showing the boundaries of lots and unit entitlements. Pursuant to legislation on strata or unit titles.
Strata Title	The formal ownership of property held within a strata plan where property is defined within horizontal and vertical boundaries.
Substantial Renovation	Where all, or substantially all, of a building is removed or replaced. This includes removing or replacing foundations, external walls, interior supporting walls, floors, rooves or staircases.
Taxable Income	The amount of money you pay tax on, usually earned from working or investing.
Tax Deduction	A tax deduction is a deduction that lowers a person’s tax liability by lowering his taxable income.
Tax Depreciation Schedule	A report that outlines the available tax deductions for the depreciation of a building’s structure and the items within.
Tax Practitioners Board	The governing body which regulates all qualified and practicing accountants, bookkeepers and Quantity Surveyors (carrying out tax depreciation schedules) within Australia.
Tax Write Off	A tax deduction that can reduce your taxable income.
Yield	The return on an investment property, calculated as a percentage of its purchase price or market value, commonly used to assess investment performance.

Glossary of Terms - Tax Depreciation

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