A Tax Depreciation blog by Paul Bennion.
The decision by the RBA to cut official interest rates to just 1.50% in August at first glance can be seen as very good news for property investors.
Lower interest rates reduces the borrowing costs associated with owning an investment property. As a result of this downward pressure on interest rates, property investors now can secure fixed interest rates for less than 4% which only a few years ago would have seemed like a dream.
However, falling interest rates can be a ‘double edged sword’ for property investors especially those on high incomes.
While falling interest rates means that the cost of holding a property is reduced due to lower mortgage repayments, it can also mean that the negative gearing benefits associated with owning an investment property are reduced.
Traditionally, high income earners have been attracted to buying investment properties due to the negative gearing benefits it offers. With interest rates falling to record lows, investors now have to look to other tax benefits associated with holding property such as tax depreciation.
Tax depreciation benefits associated with buying an investment property can be very significant but the reality is that many property investors do not fully utilise this tax break.
These signification tax benefits are underlined by the fact DEPPRO clients are now achieving tax benefits obtained through depreciation equivalent to 60% of the total purchase price of the property. In some cases these tax benefits can total $300,000 based on a purchase price of $500,000
Many investors in Australia totally underestimate the number of items that can be depreciated for tax purposes and this comprehensive list can even include garden gnomes, cubby houses and if they own an apartment, then common areas such as car parking and recreational facilities.
To qualify for these legitimate tax deductions, an investor must have a fully compliant tax depreciation company undertake an onsite inspection of the property and then compile a depreciation report based on this inspection.
Estimates of tax depreciation benefits for an investment property made from an office desk will not be accepted by the ATO.
Depreciation is a complex area of taxation that requires a professional company to undertake a depreciation report because of constant changes in rules.
The ATO is now taking a more aggressive approach to tax deductions made by residential investors and has asked a large number to provide more details about their claims relating to property investments.
Property investors should check that the company undertaking their tax depreciation schedule is a member of the The Australian Institute of Quantity Surveyors (AIQS).
Employing a company who is a member of AIQS such as DEPPRO gives protection to consumers that their tax depreciation report complies is completed in a professional manner.