Interest in the Sydney and Melbourne property market is at an all time high as record low interest rates continue to encourage investors to purchase investment properties.
Among these investors, a significant number are not claiming the maximum deductions available. According to the Managing Director of BMT Tax Depreciation, Bradley Beer, only 20 per cent of investors claim the correct deductions available from property depreciation.
As a non-cash deduction, meaning an investor does not need to spend any money to be able to claim it, depreciation is often missed. Property depreciation occurs as a result of the gradual wear and tear of the building structure and the plant and equipment assets contained within a property. The Australian Taxation Office (ATO) allows income producing property owners to claim this depreciation as a tax deduction when they complete their annual income tax assessment.
In order to claim depreciation, an investor should speak with a specialist Quantity Surveyor. Recognised by the ATO under Tax Ruling 97/25, Quantity Surveyors are one of a few select professionals who specialise in estimating construction costs for depreciation purposes. They will use their expert skills to complete a tax depreciation schedule of deductions for any property that an investor can claim. The additional deductions claimed using the depreciation schedule will help improve an investor’s cash flow.
Let’s look at a scenario which shows how claiming depreciation was a benefit for one investor. The investor purchased a property for $420,000 one year ago and is receiving $490 per week in rent, or a total income of $25,480 per annum. Expenses for the investor’s property including interest, rates and management fees total $32,000 per annum.
The following scenario shows the investor’s cash flow with and without depreciation. A typical $420,000 unit will depreciate by around $11,500 in the first full financial year.
In this example the investor uses property depreciation to go from a negative cash flow scenario, paying out $79 per week, to a positive cash flow scenario, earning $3 per week on the property.
By claiming depreciation this investor will save $4255 for the year.
To learn more about property depreciation, visit the BMT Tax Depreciation page for investors on their website http://www.bmtqs.com.au/for-property-investors.
Alternatively, for obligation free advice about any property scenario, contact one of the friendly staff at BMT Tax Depreciation on 1300 728 726.
Article provided by BMT Tax Depreciation
Bradley Beer ( B. Con. Mgt, AAIQS, MRICS) is the Chief Executive Officer of BMT Tax Depreciation.