Encourage them to claim depreciation deductions
Owners of income-producing properties are eligible for significant taxation benefits and yet some of the perks continue to fly under the radar.
Research shows 80 per cent of property investors are failing to take full advantage of property depreciation and are missing out on thousands of dollars in their pockets.
On average, property investors can claim between $5,000 and $10,000 in depreciation deductions in the first financial year. Despite this, depreciation is often missed because it is a non-cash deduction and an investor does not need to spend money to claim it.
As a building gets older, items wear out – they depreciate
The Australian Taxation Office (ATO) allows property owners to claim this depreciation as a tax deduction. Depreciation usually comprises two classes:
- A capital works allowance for the structure of the building and any fixed assets (such as walls, floors, roofs, tiling and cabinetry)
- Plant and equipment deductions for removable assets (such as appliances, floor coverings, curtains and blinds and light fixtures).
The below example shows how depreciation claims are calculated, the difference these claims can make and how claiming these deductions helps improve your clients’ cash flow.
Depreciation: an investor profile
An investor purchased a property for $420,000 and receives $490 per week in rent for a total income of $25,480 per annum.
The estimated expenses for the property include interest, rates and management fees, which total $32,000 per annum.
The following scenario shows the investor’s cash flow with and without depreciation. A new two bedroom unit typically 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 $79 per week, to a positive cash flow scenario. By claiming depreciation this investor will save $4,255 for the year.
For more information about the resources BMT can provide to assist you, visit their BMT for Accountants page on their website by clicking here.
If you or your clients would like further information on depreciation for any property scenario, contact BMT Tax Depreciation and speak with one of their expert staff on 1300 728 726.
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.