A Tax Depreciation blog by Paul Bennion.
July 1 heralded the start of the new financial year and it is effectively the starting gun for tax payers throughout Australia to prepare and submit their tax returns for 2015/2016.
It is an unfortunate fact that a large number of tax payers who own investment properties will collectively miss out on millions of dollars in tax depreciation benefits over the coming weeks simply because they do not fully claim them through lack of knowledge.
For individual investors, these tax depreciation benefits can add up to thousands of dollars in missed tax depreciation benefits for just the last financial year.
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.
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 a capital city, for example, this can equate to over $300,000 in possible tax benefits through depreciation.
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 tax 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).
Typically, a tax depreciation schedule costs around $600. This cost is tax deductible if you pay tax. It is a small investment considering the large amount of tax depreciation benefits you can obtain especially if you own a new or nearly new property.
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.
So if you are a property investor and plan to visit your tax accountant in the next few weeks, raise the issue of tax depreciation and obtaining an ATO compliant tax depreciation schedules for your property or properties.
You should also discuss with your accountant the fact that desktop estimates of potential tax depreciation benefits if not accepted by the ATO and a physical inspection of the property is required.
Obtaining a tax depreciation schedule is a small investment that can deliver a huge financial return and boost cash flows during a time when rents throughout Australia are under downward pressure.