A Tax Depreciation blog by Paul Bennion.
Property investors in Perth more than ever need to claim their full tax depreciation benefits to help counter declining rents.
The latest figures from the Real Estate Institute of Western Australia show that the median weekly rent in Perth during the June 2014 quarter fell by $10 to $450 per week. Falling rents in Perth have been the result of a surge in the number of rental properties for lease as first home buyers take advantage of low interest rates to move out of the rental market and buy a home for themselves.
This trend has seen the vacant rental stock in Perth jump by almost 30% since the end of last year to 5,824 properties. As a result, the rental vacancy rate in Perth has jumped from 3.2% to 4.2% over the past year.
Falling rents will come as an unwelcome surprise to many Perth investors who have been enjoying rising rents over the last few years. One effective way Perth property investors can counter this decline their cashflow to claim their full tax depreciation benefits. This is particularly the case for the thousands of first time investors who tend to buy rental properties during July and August after visiting their accounting and submitting their tax return.
The outlook for the Perth property market still remains positive despite a correction in rents and that is why there is still strong activity by new investors especially in suburbs where the median house price is below $500,000. Investors wanting to take advantage of opportunities in the Perth property market during 2014/2015 should ensure that they boost their cash flow through obtaining their full tax depreciation benefits.
In doing so, this will mean that they can more quickly build a property portfolio and achieve wealth creation in a shorter period of time. It is estimated that only a very small proportion of residential investors make use of the tax depreciation entitlements which are available to all investors on all investment properties.
Many investors fail to understand that the tax benefits from depreciation can be just as important as rental income and that tax benefits obtained through depreciation can be equivalent to 60% of the total purchase price of the property. Perth property investors who have a portfolio of investment properties should also realise that they can claim tax depreciation benefits retrospectively if they have not done so in the past. DEPPRO has been able to assist property investors who have several investment properties achieve tax benefits of over $100,000 by claiming depreciation allowances for previous financial years.
While tax depreciation benefits are most generous for new properties, older properties can also qualify for significant tax depreciation benefits. For example, a property that is more than 50 years of age could still qualify for thousands of dollars each year in tax depreciation benefits for the owner.
Anyone who has purchased an older property for investment purposes should therefore carefully consider the significant taxation benefits that can be achieved before beginning any construction work.