What is a Depreciation Report?

A depreciation report is a professionally prepared report detailing the loss in value of a property or asset over time. The report can be used as justification for a depreciation valuation in company accounts. This report may serve various purposes, but one of the most common uses of a depreciation report is in the context of Australia's tax rules for investment properties.

Depreciation refers to both the inherent decline in an asset's value over time, and the methods used to account for this. Most accounting and taxation systems allow an asset owner to take this decline in value and divide it over several years under an accepted formula. Each year's decline is then classed as a loss on the owner's accounts. This loss will usually reduce the overall taxable income for the year.

The most generic type of depreciation report, therefore, is contained within company accounts. It details the original value of an asset and the basis on which the depreciation is calculated and assigned to different financial years. Such detail is usually required, as most tax jurisdictions allow the owner to choose between different calculation methods depending on the type of asset.

There is also a specific document known as a depreciation report in Australia. This is a detailed breakdown of the materials, possessions and other items in a property, their initial value, and the acceptable schedules and amounts for depreciation for each item. This is relevant as Australian tax law allows owners of investment properties to set off a proportion of this depreciation against their personal income tax liabilities.

There is a key difference between an Australian property depreciation report and a more generic report. The generic report is mainly designed to show tax officials that everything has been calculated correctly and legitimately. The Australian property report can serve this purpose, but is mainly designed as a source of information for the property owner. Its aim is to show the owner the maximum amounts of depreciation that can be claimed, details that many investors who are not tax experts will not necessarily know.

Such depreciation reports should only be obtained from licensed quantity surveyors. This will minimize the chances of tax officials questioning the resulting claims for depreciation. The money spent on a depreciation report is itself tax deductible under Australian tax law. Between this and the immediate benefits of depreciation, the cost of the report can sometimes be recouped entirely in the financial year in which it is bought.