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Why is tax depreciation important for property investors?

tax-and-legal-advice
1 minute read

Why is tax depreciation important for property investors?

by Mark Wilkins 26 August 2020 1 minute read

If I said to you that we may be able to reduce your tax by thousands, would you say, “No, thank you”? Or would you say, “Yes, please!”, writes Mark Wilkins.

Why is tax depreciation important for property investors?
August 26, 2020

There are many reasons why depreciation is important to property investors:

  • It helps improve cash flow to the property investor.
  • It can reduce the tax payable.
  • A negative-geared house loss can be reduced.
  • A brand-new property can be affordable.
  • Annual deductions are typically thousands of dollars for the residential property investor.
  • Commercial property owners and leasees are often both able to claim and benefit.
  • Annual deductions for commercial properties can often run into the hundreds-of-thousands of dollars.

Why do I need to claim the tax depreciation deduction?

Most investors would agree with me that “you need to maximise your cash flow”. One of the ways to do this is by claiming all-of the available tax deductions to you. The tax depreciation deduction along with the other available tax deductions will help reduce your tax payable and has the ability to put more money back in your pocket.

Many investors know that they can claim tax deductions for interest, property management fees, repairs and maintenance. But, many investors, also miss out on claiming the tax depreciation deduction. Maybe they didn’t know about it, they were confused as to their eligibility for it, or worst of all, they were told they couldn’t claim it by their accountant.

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With interest rates being so low, the tax depreciation deduction could potentially be the biggest deduction claimable for some property investors.

Would you want to leave $1,000 in tax depreciation deductions unclaimable? What about $10,000? What about $100,000?

Claiming tax depreciation can make property investing affordable

A properties Tax Depreciation Schedule is calculated and projected or forecasted over 40 financial years. Each year’s claim is composed of the amount you can claim for Division 43 (the structural part of the property) and Division 40 (brand-new assets or plant and equipment items only).

Below are four different scenarios we have worked on showing the tax depreciation claims achieved over the first full financial year, the first 5 financial years and over 40 financial years.

Brand-new property: 4-bedroom house, 2 bathrooms, 2 carparks, purchase price $597,200

First full financial year tax depreciation deductions: $13,895

Over first five years tax depreciation claimable: $49,891

Over 40 financial years tax depreciation claimable: $293,884

Owner of a commercial property: brand-new warehouse with office space

First full financial year tax depreciation deductions: $16,446

Over first five years tax depreciation claimable: $62,772

Over 40 financial years tax depreciation claimable: $458,994

Lease of a commercial property: chemist with small doctors’ surgery attached

First full financial year tax depreciation deductions: $38,445

Over first five years tax depreciation claimable: $115,632

Over 40 financial years tax depreciation claimable: $584,691

How do I claim my tax depreciation deduction?

The quickest and easiest way to claim these deductions is to organise a tax depreciation schedule from a quality quantity surveyor. They will prepare a Tax Depreciation Schedule for your accountant to apply. Please note that your accountant is not qualified by the ATO to estimate construction costs to generate this deduction for you.

Do all property investors need a tax depreciation schedule?

In order to maximise your all your Capital Allowance and Tax Depreciation deductions, you should investigate getting a tax depreciation schedule. Owners of qualifying residential property’s, commercial property’s or, leasee’s of commercial property’s who would like to claim one of their biggest tax deductions, need to order a tax depreciation schedule.

How do I know if my investment property qualifies?

One of our expert team members will complete a free personalised estimate of approximate tax depreciation deductions available to you. Our guarantee is that we do not complete or charge for a tax depreciation schedule if it isn’t worthwhile for the client.

Do I need to pay for my tax depreciation schedule every year?

No. A schedule is a one-time investment that is also fully tax deductible in the year you purchase it.

Free updates can also be made where you have replaced, added or upgraded assets or you have done minor improvements and have the costs and details available. If you have completed major works and estimating is required, then there may be a fee involved.

By Mark Wilkins, director, Capital Claims.

Why is tax depreciation important for property investors?
Why is tax depreciation important for property investors?
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About the author

Emma Ryan

Emma Ryan

Emma Ryan is the deputy head of content at Momentum Media.

Emma has worked for Momentum Media since 2015, and has since been responsible for breaking some of the biggest stories in corporate Australia, including across the legal, mortgages, real estate and wealth industries. In addition, Emma has launched several additional sub-brands and events, driven by a passion to deliver quality and timely content to audiences through multiple platforms.

Email Emma on: [email protected]Read more

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