Aussie investors missing out on thousands in tax breaks
Australian property investors are missing out on thousands of dollars in tax breaks each year, an industry expert claims.
Tyron Hyde, owner and director at Washington Brown, one of Australia’s largest quantity surveying companies, said many property investors did not understand they could claim depreciation on their investment properties.
“Depreciation is basically a tax deduction available to all property investors,” he said.
But according to the Australian Bureau of Statistics only about 65 per cent of property investors are claiming it, so there is still a large number of Australians missing out.
Mr Hyde has written a book, CLAIM IT!, in which he spells out what can and can’t be depreciated. It also includes tips on how to legally maximise a claim and the most commonly missed deductions.
“Most people think it’s just the bricks-and-mortar but you can depreciate the carpets, the microwave, ovens, even common property,” he said.
“In some cases, it can be $10,000 to $15,000 worth of deductions in the first year alone off your taxable income.”
What is tax depreciation?
Just like you claim wear and tear on a car purchased for income producing purposes, you can also claim the depreciation for wear and tear of your investment property against your taxable income.
There are two components that make up the allowances available — depreciation on plant and equipment (like ovens, dishwashers and carpets) and depreciation on the “building allowance” (the construction costs of the building itself, including the concrete and brickwork).
This recognises the fact that the building and the equipment within it become worn out over time and eventually need to be replaced.
How does tax depreciation on new apartments work?
New hi-rise developments are more complicated than building a single dwelling therefore the construction costs per square metre are higher — the owner can claim these deductions for a maximum of 40 years.
In new high-rise apartment buildings, not only can you claim depreciation on items within the apartment, but also a portion of the depreciation on shared services — like intercoms, air-conditioning, fire and security systems and elevators — can be claimed by each owner.
Those costs can be offset against your assessable income as soon as your property has settled and for as long as your investment property is available for rent.
Over that 40 years claiming tax depreciation can make a big difference to an investor’s hip pocket.
The table* below shows how much difference claiming tax depreciation could make to a hypothetical investor buying a three-bedroom apartment in Finbar’s luxury South Perth apartment development, Civic Heart. Enquire now for more information.
* The table is based on the following assumptions:
- 90% LVR.
- 5% interest rate on mortgage.
- Rental income estimated by Burgess Rawson at $800 per week.
- Washington Brown provided tax depreciation estimates
- Finbar International provided estimates of rental income and outgoings.
- Entry and exit costs are excluded e.g. stamp duty and legal fees
NB: This analysis is provided to illustrate the benefits of claiming tax depreciation benefits on an investment property only, and should not be seen as financial advice.