A Property blog by Paul Bennion.
With the latest property sales data showing that nationally house prices are in decline, property investors need to take a more pragmatic approach to the real estate market during the coming year.
2016 is shaping up to be a challenging year economically and investors need to take a ‘back to basics’ approach to ensure they can successfully move forward.
This back to basics approach means that investors need to focus on the key fundamentals that drive property prices rather than following the herd and buying in ‘boom’ areas.
At the same time, with rental yields under pressure, they need to maximize their cash flow by ensuring they obtain all of their full tax benefits such as depreciation.
For example, it is still a fact that a large proportion of Australian property investors fail to claim their full tax depreciation benefits that can equate to 60% of the purchase price of a property.
Back to Basics – What is Tax Depreciation?
Tax depreciation on a residential property is a deduction against assessable income allowing the owner to reduce the amount of taxation payable.
An investor is able to claim for two distinct types of depreciation on buildings. The first is Capital Allowance which is a deduction based on the historical construction costs of the property and may include surveying, engineering, architectural and building fees. The second is Plant and Equipment which includes items such as floor coverings, window treatments and fixed equipment i.e. cookers.
How much tax deprecation can I claim?
Most investors do not realize that tax benefits obtained through depreciation can be equivalent to 60% of the total purchase price of the property.
For a new apartment in Perth, for example, this can equate to over $200,000 in possible tax benefits through depreciation.
How did I claim these benefits?
You should engage the services of a tax deprecation company who will undertake an inspection of your property and provide you with an ATO compliant tax depreciation report which you can provide to your accountant. This report is a ‘once off’ and will outline the amount of tax benefits you can claim on an annual basis. Anyone considering employing a tax depreciation company should ensure that they are a member of the Australian Institute of Quantity Surveyors (AIQS).
How much does a schedule cost?
Typically, it should cost around $600. This cost is tax deductible if you pay tax.
What if I own an investment property for several years and have not claimed my full tax deprecation benefits?
DEPPRO estimates that only one in five residential investors make use of the tax depreciation entitlements which are available to all investors on all investment properties.
Many property investors who have owned their properties for several years and have not undertaken a tax depreciation schedule still have the potential to claim back thousands of dollars in tax depreciation benefits.
A depreciation schedule can be undertaken at any time by a property investor. If you own a property for a number of years, you can still undertake a depreciation schedule and put in an adjusted tax return to enable them to obtain unclaimed tax depreciation benefits.