Pick your favourite property expert and check out their advice regarding the benefits of claiming depreciation on their investment properties. Whether you follow Margaret Lomas or Michael Yardney, Cam McLellan, or Jane Slack-Smith, whether you're a cash-flow positive investor, or negatively geared, all the experts are clear on the benefits of claiming for depreciation on investment properties old and new.
Claiming for depreciation improves cash flow and brings with it the opportunity to pay down debt or reinvest and grow your portfolio. This is a key part of the strategy employed by experts around the country who continue to build their portfolio and their wealth year after year.
Depreciation is simply a tax deduction that investors can claim to account for the ageing and wearing out of their investment property and it's assets over time.
It is typically one of the largest tax deductions available to investors, and has the ability to improve rental property cash flow by thousands of dollars every year. Learn more about depreciation here.
Understanding the impact of depreciation on cash flow is particularly useful for investors. You want to know how much is you property going to cost you to hold each week, month, year.
In the following example, where no depreciation is claimed, the cash-flow position of the property is negative $159.75 per month, or $1,917.00 per annum. This means the investor has to find $159.75 per month to make up the shortfall between the income generated by the investment property and the expenses incurred.
By claiming depreciation, the post-tax cash flow of the property becomes positive $192.66 per month, or $2,311.90 per annum. Remember, this is post-tax, meaning the investor is better off $352.40 net, every month.
Effect of claiming depreciation on the cash-flow position of an investment property:
Depreciation is claimable as a tax deduction in your tax return each year. You claim for it in the same way you claim for insurances, property management fees, repairs and maintenance etc.
The key difference from other claimable expenses is that depreciation is a calculated deduction. This means that how much you can claim for depreciation is calculated using a formula. Calculations are based on the construction cost of your building (Division 43), and the asset values and effective lives of all the assets in your property (Division 40).
Claiming depreciation is very easy. A quantity surveyor will calculate the depreciation you can claim annually and report it in your depreciation schedule. A depreciation schedule is a one-off purchase that details all the deductions going forward for the remainder of your property's life.
Simply give your depreciation schedule to your accountant when you do your taxes each year. If you do your own taxes, you can use the figures reported and enter where appropriate in the ATO tool.
Still unsure about claiming depreciation for your rental property?
Get a free, personalised estimate of the deductions you could be claiming from our expert team. Simply click the link below and provide a few details to allow us to do a quick, no obligation desktop assessment of your property. You have nothing to lose and possibly thousands of dollars to gain. You can also contact our team with any questions on 1300 922 220.
If you own a rental property, the best way to ensure your depreciation deductions have been maximised is to use a depreciation schedule prepared by Capital Claims Tax Depreciation.
For an estimate of deductions you may be entitled to, or to have your current depreciation schedule reviewed free of charge, please don't hesitate to get in touch on 1300 922 220.
Mark is an expert quantity surveyor, business owner, public speaker and property developer. With 20+ years experience in the construction and quantity surveying industry Mark’s specialist expertise have been sought in consultant capacity by professional bodies such as the National Institute of Accountants and the National Tax and Accountants Association, and he has presented at various property and tax seminars and expos nationwide. Mark holds a Bachelor of Construction Management from the University of Newcastle, is an affiliate member of the Australian Institute of Quantity Surveyors and a Registered Tax Agent.View all posts by Mark Wilkins