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Add cash to your pocket with depreciation

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By BRADLEY BEER

Every landlord has a number of goals to which they must pay attention in order to have a successful experience as a property investor.

These goals include obtaining the maximum weekly rent possible, choosing a reliable tenant and ensuring the property is well maintained in order to avoid hefty repairs and maintenance costs.

The most important goal investors hope to achieve with their properties is to profit financially. No investor buys property with the intention that it will cause financial stress, yet all too often, this can prove to be the case.

In order for investors to receive the best return possible from their property, it’s important they claim all of the deductions available to them. Most property investors are aware of their ability to claim repairs and maintenance costs, property management fees and interest on their loan, but an astounding 80 per cent of investors still don’t claim the maximum deductions available via property depreciation. When it comes to improving cash flow, claiming the depreciation deductions available can be a key factor.

Every income-producing property entitles its owner to depreciation deductions. Considered a non-cash deduction, an investor doesn’t need to spend any money to be able to claim depreciation. These are deductions made available by the Australian Taxation Office due to gradual wear and tear, which occurs to both a building’s structure and the plant and equipment assets contained in the property over time.

Deductions are split into two types: capital works deductions for the structural items contained within the property, and plant and equipment depreciation for any of the removable assets contained within the property.

To see how a depreciation claim helps to improve cash flow, let’s look at an example scenario of an investor’s situation both before and after claiming depreciation. It’s also important to note that when investors first decide to purchase a property, they should crunch the numbers further to work out what their after-tax situation will be. This provides a true reflection of the affordability of the property for an investor.

Case study

Danielle purchased a three-bedroom house for $439,500 one year ago. She receives a rental income of $425 per week or $22,100 per annum. Expenses for Danielle’s property, including interest, rates, management fees and repairs and maintenance total $28,913.

Prior to claiming depreciation, Danielle is experiencing a loss from her property. By contacting a quantity surveyor, she found out that she would be able to claim $12,500 in depreciation deductions in the first year. The following table shows Danielle’s cash flow with and without the depreciation claim:

Without property depreciation, Danielle would experience a loss of $83 per week during the first year of owning her property. By claiming depreciation, she is able to turn her situation into a positive cash flow scenario, earning $6 per week on the property. By claiming depreciation, this investor will save $4,625 in the first financial year alone.

Every property investor will benefit to some degree by claiming depreciation. The most important goal investors should have is to ensure their depreciation claim is maximised in order to increase their available cash flow. This can be done by seeking the advice of a quantity surveyor and requesting a tax depreciation schedule. A schedule from an expert will ensure the maximum deductions are claimed by including a detailed site inspection of the property to photograph and take notes of all the assets within the property. The schedule is 100 per cent tax deductible. The benefits for investors are clear; more cash in their pocket and the peace of mind that the deductions they claim are correct and maximised.

 

About Bradley Beer

Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Bradley joined BMT in 1998 and as such he has substantial knowledge about property investment supported by expertise in property depreciation and the construction industry. Bradley is a regular keynote speaker and presenter covering depreciation services on television, radio, at conferences and exhibitions Australia-wide.


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Original author: Bradley Beer

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