Are you maximising the tax depreciation and capital allowance benefits available for your investment property?

All types of income producing properties have substantial taxation benefits available to be claimed as a tax credit. Many property investors are missing out on thousands of dollars in tax depreciation deductions. Both new and old properties will attract some depreciation benefit that the owner is able to claim as a tax credit.

A common myth is that older properties will attract no claim. Therefore it is worth making an enquiry about any property. When a property owner has not been claiming deductions for tax depreciation, previous financial years tax returns can be amended.

The Australian Taxation Office (ATO) allows for up to the previous four year returns to be amended, in some instances the ATO may have to pay you money back!

The maximisation of a depreciation claim on any building requires a combination of construction costing skills and an excellent knowledge of Tax Legislation. This rare combination of skills has resulted in a select number of quantity surveying firms specialising in property depreciation.

Quantity surveyors are recognised by the Australian Taxation Office to be appropriately qualified to estimate building costs for the purpose of depreciation. Your accountant should recommend a specialist to complete such a report, to maximise the depreciation benefits from your property.

Depreciation: An Investor Profile

The depreciation benefit to every investor will vary. The following example has been provided as an approximate guide, using the diminishing value of depreciation.

Property:

A two bedroom unit purchased for $400,000

Income:

Rented for $385 per week

Total income of approximately $20,000 per year

Expenses:

Interest, rates and management expenses $32,000 per year

Scenario 1 – No depreciation claim:

Pre tax cash flow

Taxation loss $12,000 = $230 per week

Post tax cash flow (top tax rate of 45%)

Tax refund $5,400

Net cash outlay $6,600 = $126 per week

Scenario 2 – With depreciation claim:

Pre tax cash flow

Tax depreciation $12,000

Cash flow position -$12,000

Total deduction $24,000

Post tax cash flow (top tax rate of 45%)

Tax refund $10,800

Net cash outlay $1,200 = $23 per week

This investor has over $100 extra a week by obtaining a depreciation report.

This demonstrates the after tax effect of applying property depreciation. The property investor in this situation has a bottom line benefit of $5,400 per annum. The benefit is the difference between the $6,600 cost before depreciation is applied, and the $1,200 cost once depreciation is applied.

This profile emphasises the benefit of depreciation. The property investor has made this saving from the same property that has moments ago cost $6,600 for the same period.

Article Provided by BMT & ASSOC Pty Ltd.

Like It? Link it!