The details
- 40-acre property with fruit farming operation
- Five residences including houses and self-contained cabins
- Five sheds including a packing shed with a large cold room, mezzanine floor for storage
- Farm equipment and machinery
The approach
In this Capital Allowance and Tax Depreciation example the Quantity Surveyor prepared detailed schedules across all three methods – Prime Cost, Diminishing Value Methods & Small Business
Differing criteria, considerations and requirements apply to each method, along with the applied depreciation rate used against each asset group.
The method adopted that gained the owner maximum tax benefit was the Small Business Method.
Based on the preliminary estimate undertaken prior to the preparation of a full Tax Depreciation Schedule, we were able to improve the expected maximum claim benefit return for the client.
The outcome
Undertaking an in-depth capital allowance and tax depreciation assessment resulted in a first-year depreciation claim of $486,675, which boosted the net cash position of the operation by $146,003.
Within this the business recovered $89,590 in scrapping in the first-year claim.
| No Tax Depreciation Claim Applied | Tax Depreciation Claim $486,675 p/a Applied | ||
| Total Annual Income: ($163,073 p/m) | $2,106,237 | Total Annual Income: ($178,688 p/m) | $2,106,237 |
| Total Annual Expenses: | ($1,824,457) | Total Annual Expenses: | ($1,824,457) |
| Cash Income minus Expenses | $281,780 | Cash Income minus Expenses | $281,780 |
| Tax Depreciation Claimed: | $ – | Tax Depreciation Claimed: | ($486,675) |
| Pre-Tax Profit: | $281,780 | Pre-Tax Loss: | ($204,895) |
| Tax Payable (@30%): | ($84,534) | Tax Refund (@30%): | $61,469 |
| Net Annual Cash Position: | $197,246 | Net Annual Cash Position: | $343,249 |
| Monthly After Tax Cash Position: | $16,437 | Monthly After Tax Cash Position: | $28,604 |
| The additional tax benefit per annum amounts to $146,003 ($12,167 per month) |
Disclaimer: The tax depreciation amount within this case study relates to the first year claim and will vary depending on the method and asset allocations considered for tax depreciation. It will be different for each case and assessed on the business infrastructure, equipment/chattels and capital expenditure on the property recently