tax female
Millions are being lost annually due to not deducting depreciations correctly, says Mark Hay. Image – Canva.
  • Investors aware of tax concessions, but not tax relief writes Mark Hay
  • Property deprecation can equate to 2.5% per annum
  • Chattells as floor coverings can account for significant deductions over time

Most people are aware of the benefits of purchasing new property and obtaining remarkable tax concessions on deprecation of both the building and fittings.

However, very few investors realise that investment property also offers tax relief via deprecation. Depending upon the value and age of the property this amount can sometimes be quite substantial.

For instance, a new building valued at say $400,000 total (land – $110,000 and $290,000 Build), allows 2.5% deprecation for 40 years on the building component of the property, this equates to something in the order of $5,000 per annum, which you can then deduct from you tax.

If you happened to purchase the building in say two years’ time – as the second purchaser – you would be eligible to deduct $5,000 per annum for a further 38 years.

That’s an incredible $190,000 off your tax bill for the life of the building.

It gets even better with the use of deprecation on chattels such as floor coverings, window treatments and light fittings which all have varying rates of accelerated depreciation and in regard to strata titled property.

Further claims over common property assets

If the property happens to be furnished, then the story becomes better once again. Deprecation is obviously a book figure, which is used to annually markdown the value of the property.

Whilst there is obvious wear and tear on the building it is a fact that property, unlike cars, goes up in value not down in value as demand and costs of replacement property increases.

So, when buying secondary property, the secret to tapping into this source of tax savings is to seek from the vendors a copy of their current deprecation schedule.

If this is not available than I suggest the use of a Quantity Surveyor who will give an actual value of the current building and chattels value, which is recognised by the Tax Department.

Then you are able to commence claiming the relevant tax deduction on a recurring annual basis. Collectively there is millions of dollars of tax deductions for deprecation, which are currently going unutilised each and every year.

I suggest you review your current portfolio or if you are purchasing a property five years old or younger be aware of this great advantage to tax and take steps to obtain your rightful deductions.

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Disclaimer: This article contains general information and should at no time be considered financial advice to the reader. The reader should always verify their situation with their financial advisors before taken any further steps. 

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