“Research shows that 80% of property investors are failing to take advantage of property depreciation and are missing out on thousands of dollars in their pockets,” said Bradley Beer, Managing Director of BMT Tax Depreciation.
As a building gets older, items wear out – they depreciate. The Australian Taxation Office (ATO) allows property owners to claim this depreciation as a deduction.
Properties that generate income for the owner are eligible for significant taxation benefits. Of all the tax deductions available to property investors, depreciation is most often missed because it is a non-cash deduction – the investor does not need to spend money to claim it.
Claiming depreciation on an investment property can make a big difference to an investor’s cash flow, and should be an integral part of any property investment service.
In order to claim these deductions, investors are encouraged to enlist a specialist Quantity Surveyor to complete a tax depreciation schedule. This schedule outlines the deductions available on specific property and is used by the investor’s Accountant when preparing a tax return.
Both new and old properties have the potential to attract significant depreciation benefits for the owner to claim as a tax credit. Property owners are also able to go back and claim missed deductions on previous financial year’s tax returns.
For an investor experiencing negative cash-flow on their property, depreciation can be the key to turning their situation into a more positive scenario.
An example of one investor who owns a property purchased at $420,000 with a rental income of $490 per week with a total income of $25,480 per annum; had expenses for the property such as interest, rates and management fees totalling to $32,000.
By claiming depreciation, BMT Tax Depreciation (Buy Property Direct’s preferred affiliate) was able to turn their negative cash-flow position into a positive one, saving them $4,255 for the year.
The following scenario shows this investor’s cash-flow with and without depreciation.
Scenario 1 – Without a depreciation claim:
Pre-Tax Cash-flow
Taxation Loss $6,520 (income – expenses)
Per Week $125
Post-Tax Cash-flow (top tax rate 37%)
Tax Refund $2,412 (loss x 37.5%)
Net Cash Outlay $4,108 (initial loss + refund)
Per Week -$79
Scenario 2 – Including an $11,500 depreciation claim:
Pre-Tax Cash-flow
Tax Depreciation $11,500
Cash Flow Position -$6,520
Total Deduction $18,020 (initial loss + depreciation)
Post-Tax Cash-flow (top tax rate 37%)
Tax Refund $6,667 (Total deductions x 37.5%)
Net Cash-flow +$147 (initial loss + refund)
Per Week +$3
This investor used property depreciation to turn their negative cash-flow position into a positive one. Without depreciation they were paying out $79 per week. By taking advantage of tax legislation and making a depreciation claim, the investor was able to turn their loss to an income of $3 per week. In total, BMT Tax Depreciation saved this investor a total of $4,255 in just one year.
Ensuring that each depreciation claim is maximised on any building requires a combination of construction costing skills and thorough knowledge of current tax depreciation legislation. For this reason, it is recommended for investment property owners to consult a specialist Quantity Surveyor to prepare a depreciation schedule before lodging their tax return.
Article Provided by BMT Tax Depreciation.
All Buy Property Direct clients receive a BONUS BMT Tax Depreciation schedule with their settlement.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Managing Director of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia wide service.