A Tax Depreciation blog by Paul Bennion.
A major focus of the media recently has been on the plight of first home buyers who have been squeezed out of the property market by surging property prices especially in Sydney and Melbourne.
However, this has been part of a long term trend with first home buyers finding it inceasingly harder to purchase a home over time due to rising housing prices.
For example, the latest ABS figures show that in April 2015, first home buyers in New South Wales secured loans to purchase 2,173 properties. This was less than half the number back in April 2009 when the corresponding figure was 5,807.
First home buyers are also being forced to take out larger loans with the ABS figures showing that in New South Wales the average home loan during this six year period for first home buyers has jumped by more than $90,000 to $384,600.
In response to this growing financial unaffordability of purchasing an owner occupier home, DEPPRO is finding that more first home buyers are deciding to purchase an investment property as their first home.
These astute first home buyers are purchasing investment properties as their first home because they understand that they have very few out of pocket expenses as the rental income can generally cover the mortgage repayments due to very low interest rates.
In addition, people buying an investment property as their first home as opposed to an owner occupier home can qualify for major tax depreciation benefits.
During 2015, DEPPRO has organised a growing number of tax depreciation reports in Sydney and Melbourne for first home buyers who have chosen to buy an investment property rather than an owner occupier home. In both these Cities house prices have risen strongly to the point that many first home buyers are struggling to buy an owner occupier property.
These first home buyers in Sydney and Melbourne are ensuring that they obtain the full tax benefits associated with buying an investment property by undertaking a tax depreciation report.
Buying an owner occupier home does not quality a first for home for tax benefits while buying an investment property can generate significant tax savings.
Depreciation is a legislative allowance introduced by the Australian Tax Office (ATO) that allows property investors to claim back the decrease in value of their properties and fittings.
Tax benefits obtained through obtaining an ATO complainant tax depreciation report can be equivalent to 60% of the total purchase price of the property.
For a first home buyer, this can result in tax savings of over $200,000 on the purchase price of a new property such as an apartment.
These tax savings are calculated over a 40 year period in the tax depreciation report with most tax benefits flowing during the years immediately after the purchase of the property.
A tax depreciation report costs around $600 (the cost of tax deductible) and it can generate thousands of dollars in tax savings each year. A key part of ensuring that the investor obtains their full tax benefits is to have a professional depreciation professional prepare a comprehensive depreciation report of the property.
You should ensure that the company who undertakes the depreciation report is recognised as a tax agent by the Australian Tax Office.
This tax depreciation report has to be compliant with the guidelines set down by the ATO for the investors to qualify for any tax benefits. Investors should therefore check that they are employing a professional tax deprecation company who can prove that their reports are ATO compliant.