A Tax Depreciation blog by Paul Bennion.
The latest property figures produced by CoreLogic show residential rents for dwellings in Australia’s capital cities are now increasing at their lowest level on record – averaging just 3.4% during April 2016.
Melbourne had the lowest rental return of any capital city in Australia for houses during April at just 2.9% and this will followed by Sydney at 3.1%.
These very low rental returns in Melbourne and Sydney would indicate that investors are now relying heavily on negative gearing in these two capital cities to offset their cash flow losses against their taxation income.
If this is the case, then both these two major property markets will be very vulnerable to proposed changes to negative gearing if Labor wins the forthcoming Federal election.
Other capital cities with return returns in excess of 4% would be less vulnerable as investors would be less reliant on negative gearing to cover their cash flow losses. These capital cities with rental returns for houses above 4% include Brisbane (4.2%), Canberra (4.1%), Darwin (5.2%), and Hobart (5.3%).
Rental returns have been gradually falling due to the fact that rents have not been matching increases in property prices. In fact, the CoreLogic figures for April 2016 reveal that capital city rents have collectively fallen by 0.2% over the past year due to boom in residential housing construction in many areas of Australia.
With rental returns under pressure due to falling rents, property investor can offset this decline in rental income by boosting their cash flow through claiming the tax depreciation benefits associated with property investment.
These generous tax benefits do not just apply to investors who have just purchased an investment property.
If you already own a property for a period of time, you can undertake a tax depreciation report and use this to submit an amended tax return which can generate thousands of dollars in additional cash flow
It is estimated that only one in five residential investors make use of the tax depreciation entitlements which are available to all investors on all investment properties.
Most investors do not realize that tax benefits obtained through depreciation can be equivalent to 60% of the total purchase price of the property.
A large proportion of these tax benefits are never claimed which means that each year hundreds of millions of dollars in tax benefits are lost every year by investors not claiming their legitimate entitlements.
Investors fail to understand that the tax benefits from depreciation can be just as important as rental income.
This is particularly the case with people buying new strata investment property because one year’s depreciation allowance could be equal to several years of rental income.
A key part of ensuring that the investor obtains their full tax benefits is to have a professional depreciation professional prepare a comprehensive depreciation schedule of the property.
Even an older style property can also qualify for substantial tax depreciation benefits if a depreciation schedule is undertaken. If the older style apartment has recently been renovated then additional depreciation benefits can apply.