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What is Tax Depreciation?

That’s a question that we get asked a lot. Quite simply in accounting terms, it’s a tax deduction that allows for the wear and tear and ageing of an investment property. But before you glaze over and fade away and we lose you, let’s have a look at what that means for you as a property investor.

Quite simply it means that tracking how your property and the assets in it age can actually save you money.

So as the property gets older, and the items in there get older as well, that means you can make claims against the original value of those assets when you first purchased them, that’s a tax deduction. No different to any other tax deduction that you create for that property. Things such as the interest, the insurance, your rates, your property management – just another deduction.

Because tax depreciation is calculated written down values and NOT a cash deduction, means you don’t have to pull that money out of your pocket every financial year to make those claims AND it’s a legitimate deduction. Maybe it’s time you came to see us, at Capital Claims.

 

At work and can’t listen? Then read all about it below.

6 Facts Every Property Investor Should Know About Investment Property Depreciation

If you’re a property investor there is a good chance you’re giving away money. That right, just giving it away. Are you not convinced? Here is 6 facts that will tell you how…6 facts that every property investor should know.

Fact 1 – 60% of property investors aren’t claiming for depreciation – that’s 60% that aren’t claiming or maximising their depreciation deductions…60% that aren’t claiming their lawful entitlements. Most property investors believe their accountant is looking after depreciation for them – but there’s a good change that they are not. How do we know this? Well accountants aren’t recognised by the ATO to prepare estimates of construction costs, quantity surveyors are. They prepare reports that maximise the deductions for that investment property of yours. Without a quality report prepared by a quantity surveyor you’re missing out on thousands of dollars of tax deductions.

Fact 2 – Tax Depreciation is one of the largest deductions you will be able to make – $6,000 to $12,000 in deductions in the first financial year is a great deduction for you. A deduction of that size can make a massive Improvement to your tax return, improving the cash flow position of that property. So, why are so many property investors not claiming their tax depreciation? 1, they believe the property is too old, or 2, they think they need to pay back the capital gains when they sell the property, if they sell the property – it’s typically not so.

Fact 3 – Older properties still qualify for substantial depreciation benefits – At least 90% of older investment properties still have great depreciation claimable to them even if they’re older than 1987.

Fact 4 – Claim for renovations over time – It’s rare these days to see an older investment property that has not had renovations done to kitchens, bathrooms, extensions…all of these works are actually claimable by you as the property investor. These works may have been done by you or by the previous owner, but they are still claimable…by you. If you don’t know when these works were done, or how much they cost, that’s quite ok. As quantity surveyors we are recognised by the ATO to prepare estimates of construction costs and research the works that have been done. What if I was to tell you that you can claim for assets that have been thrown away!

Fact 5 – Claiming for assets that have been thrown away – One of the little known aspects of renovating is the immediate deductions that are available for removing assets during that process. You renovate your kitchen, you’re in between tenants, you take out the stove, you tear down the range hood, you chuck them in the skip bin…what happens? You get immediate deduction for the residual value of that asset. On top that that, you get to claim the cost of the new kitchen that you just put in!

Fact 6 – The impact on Capital Gains Tax is over estimated – The benefit of tax depreciation is, the money is in your pocket today. Why is it so good? You can use it to reduce debt. You can use it to reinvest. You can even renovate your property with it and, the dollar is worth more today than it will ever be worth in the future. Combine this with the discounts, and in some cases the exemptions for capital gains tax that may be available to you and you will see why smart investors are using these strategies to improve their cash flow for their investment properties.

Are you interested in how tax depreciation can work for you, in your scenario? Maybe it’s time for you to come and have a chat with us at Capital Claims. We’d love to be able to help you.

Investment property depreciation.

 

At work and can’t listen? Then read all about it below.

Investment Property Depreciation

Hopefully by now you may have seen some of our previous clips about how Capital Allowances and Tax Depreciation are deductions that are available to you for owning your own investment property.

Hopefully you also recognise that these deductions are available for you to make claims against every financial year to reduce your assessable income.

As far as the tax man is concerned, the smaller your income, the less tax you have to pay…so tracking your assets and claiming depreciation allows you to reduce that assessable income and ultimately saves you money. When considering depreciation there are two areas, two distinct areas, of calculations – Division 40 and Division 43.

Division 40, they are your plant and equipment items such as your carpet, your stove, your air conditioner, your light shades. The other side of the coin is your Division 43, the structure of your building. Your timber, your tile, your bench tops….the two sides.

For us, understanding which works fall into which division is fairly straight forward. So if you would like us to have a look at your property, or even understand what depreciation you might have been missing out on, by all means, have a look at our website…but why not give us a call. We’re happy to have a look and see where we can help.

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