With the end of the 2015/16 financial year approaching, I urge Australian property investors to have a current depreciation schedule in place by 30 June 2016.
Almost 80% of landlords fail to maximise depreciation claims against their investment property, potentially missing out on thousands of dollars come tax time. The problem is that many landlords either aren’t aware of the benefits associated with depreciation, or don’t have an up-to-date depreciation schedule, which enables them to claim against the reduction in value of items such as carpets, curtains, stove cook tops, some light fixtures, shower heads and so on.
Each year, landlords can claim between 10% and 40% off a variety of depreciable items, and sometimes more. In many cases, 2.5% of the building cost of the investment home is also claimable on an annual basis.
Brad Beer, from quantity surveying firm, BMT Tax Depreciation Quantity Surveyors, says the potential depreciation claims for new homes makes them an extremely attractive option. “One important benefit that new homes offer investors is considerable capital depreciation. Almost 100% of the construction cost is tax-deductible over the life of the property,” says Beer. “As a rule, the newer the property, the more an investor can claim, making purchasing a near-new house or apartment potentially more worthwhile, in a taxation sense, than an established home, at least for the first five or so years of ownership.”
According to BMT, a brand new residential home valued at $500,000 could potentially provide a landlord with cumulative depreciation claims of $40,000 over a five year period. “That said, every depreciation assessment is different and the benefits are calculated on a case-by-case basis,” says Beer. He also warns that significant tax allowances won’t always offset the costs of purchasing and/or building a brand new investment home, and this is where a tax depreciation schedule can prove useful.
Landlords should seek professional support when creating or updating a depreciation report. Arranging a specialist tax depreciation company such as BMT to carry out the report will ensure that everything is done by the book. This advice is particularly appropriate for established properties, where it is also possible to back-date missed depreciation claims by two years.
Always seek professional advice for established investments as it can be trickier to navigate the tax deductions. Moreover, the costs associated with a depreciation schedule, which can be between $650 and $700 per report, are also tax deductible.
Could self-assessment result in lost deductions?
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