Depreciation and your investment property – Sydney Property Buyers advice

April 09, 2014 Tweet Share Linked In Tweet

When I ask anyone if they’re happy paying tax, they generally reply either “No, not really” or “Yes, but I feel I pay too much”.

So, how can we reduce the amount of tax we pay?

At Skeen Property Buyers, we can offer you a clear answer to the following question: “If you’re a property investor, is it really worth paying for a depreciation schedule and will I get more back in tax if I do?”

 

The answer is YES.

Depreciation schedules are one of the most undervalued expenses. Most people do not understand their true value and how it can save you tens of thousands and in some cases hundreds of thousands of dollars over a 40-year period.

You pay a small once-only fee of around $700, which is 100% claimable from your taxes.

In return, an accredited Quantity Surveyor will conduct an onsite full depreciation audit on your investment property, and then provide you with a schedule that can be used against your taxable income for up to 40 years.

This schedule becomes your accountant’s bible because it takes into account your actual investment property, and not the guestimate that most investors go by. The difference between a guestimate and an actual deprecation schedule processed by an accredited quality surveyor can amount to enormous deductions you wouldn’t ordinarily claim. Meanwhile, the ATO will accept your Quantity Surveyor’s schedule without question.

In addition to making sure your schedule achieves the maximum deductions in rebates, you can choose to claim these deductions weekly, fortnightly or monthly, and through your pay packet instead of waiting until you submit your annual taxation return at the end of the year.

Did you know that due to the perceived hardship of negatively gearing, most investors sell within three years of purchase because of financial stress? By claiming your dedications weekly, you can reduce the amount of your financial stress, and be able to hold your property for many, many years, achieving natural capital growth due to time in the market.

Compare the figures below between using a depreciation schedule against not using one. This example is based on a new property with a 40-year depreciation schedule, 5% rental return and 5% interest rates.

Purchase price $450,000
Rent ($440/week) $22,880
Expenses $38,000
Pre-tax cash flow -$15,120 ($291/week)
   
Without depreciation
Pre-tax cash flow -$15,120 ($291/week)
Post-tax cash flow
(tax rate 37%)
Tax refund $5594 & Net cash outlay $9526
PER WEEK $183
   
With depreciation  
Pre-tax cash flow Loss -$15,120 + Depreciation -$14,500
(Total Deduction $29,620)
Post-tax cash flow
(tax rate 37%)
Tax refund $10,959 & Net cash outlay $4161
PER WEEK $80

The difference between your cash flow with and without depreciation is $103 per week.

As you can see, claiming depreciation will certainly help with your cash flow, it all adds up, and it’s legal!

If you want to know more about how depreciation can help you to invest sooner, and how it can help you to invest in more than one property then call us now.

Disclaimer *We make no representation and give no warranty as to the accuracy of the preceding information and do not accept any responsibility for any errors or inaccuracies in, or omissions from, the information contained therein (whether negligent or otherwise) and we shall not be liable for any loss or damage arising as a result of any person action or refraining from acting in reliance on sny information contained herein

Robert Skeen

Written by Robert Skeen

Robert Skeen Sydney Buyers Agent Specialist , Expert Real Estate Negotiator — Skeen Property Buyers Agents offer a personalised 6-star property buying service

Robert as Sydney’s Leading Buyers Agent has successfully helped thousands of Australians buy their dream homes and build their wealth through sound property investments

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