“Not Claiming Tax Depreciation Is Like Not Charging Rent!”
Increase your real estate investment cash flow.
You take your rent each month but have you ever looked at ALL the other components that make up your real estate investment cash flow? If you did, you may just find some information that will change the way you think about property investing forever.
Australia’s housing market has boomed over the last decade. In cities such as Perth, it is stronger than ever, with average house prices rising by 24% in the year to the end of March 2006. Most of this boom has been fuelled by the take up of people looking to bricks and mortar as an investment, with 30% of recent residential sales being to investors.
And why not? Housing in Perth has steadily gained, on average, 14% capital growth per year over the past five years and 8.4% per annum over the past 15 years.
But are you missing out?
So it would probably surprise you that most people who invest in property miss out on thousands of dollars of benefits from their investment. They miss out year after year and they miss out big time.
How could this be so? The reason is most property investors in Australia miss out is because“they pay too much tax”.
How does this happen? Well it’s simple. Most property investors are losing out big time every year because they are not claiming all the deductions they are entitled to in their investment property. We’re not just talking the ones that you probably already know about like interest and strata fees. We’re talking about the depreciation of your asset – the fixtures and fittings and even the building itself.
Let me share with you a disturbing statistic about depreciation: Research suggests that only 20% of investors fully utilise and take advantage of the available tax depreciation benefits of their investment property!
So – in other words – the remaining 80% of the investment population are giving the government more money than they actually deserve!
Would You Give Up Your Rent?
Think of it this way. If you didn’t charge rent for your investment property, how good an investment would it really be? You’d be missing out on thousands while you wait for the property to accumulate value through capital growth.
It’s the same when you don’t claim your rightful depreciation benefits from the government, you could potentially be missing out on thousands.
Did you know….there are Two Types of Tax Depreciation?
The Australian Taxation Office defines Tax Depreciation as: “The value of an asset that gradually reduces over time as they approach the end of their useful life. Assets, which lose value in this way, are said to depreciate. In recognition of this fact, the cost of capital assets used in producing assessable income can be written off over a period of time as a tax deduction. Under income tax law, the term ‘Depreciation’ is applied to plant – for example, motor cars and machinery.” The ATO introduced this ruling for deduction for capital works and plant in 1985. Put simply, it is a method used to capture the reducing value of an asset for tax-saving purposes.
There are two types of Tax Depreciation that you should know about. The first is Capital Works Depreciation, and the second is Depreciation on Plant. Capital works allowance (sometimes referred to as building allowance or special building write off) allows the actual building to be depreciated and is based on its historical building cost. Depreciation of plant is where items such as carpets, curtains and many more items can be depreciated and claimed as deductions against rental income.
The Capital Works Depreciation is a set annual allowance and is usually 2.5% of what the building “originally” cost to build.
Unlike the other depreciation allowance, Depreciation on Plant is different in many ways in that it is not based on historic values but is re-valued each time a property is purchased. Regardless of when the carpets, curtains or other items of plant were purchased, they are given a new value at the date of property settlement. Some items that can be claimed under ‘Depreciation on Plant’ include hot water services, garden watering systems, cook tops, range hoods, swimming pool filtration and air-conditioning systems.
Do You Have a Professional Tax Depreciation Schedule for Your Investment Property?
Hi, my name is Colleen Jackson, one of the directors of Depwest. I’ve seen property investors that continue to make money and those that find all the glamour of property investing harder than it first seemed.
Our aim at Depwest is to help property investors make more money from their investments which means claiming their rightful and legitimate tax deductions.
If you have an investment property and you haven’t had a professional tax depreciation schedule completed, then you could be handing thousands of dollars to the ATO every year that you need not do. You’re missing out on extra real estate investment cash flow.
But, with a professional tax depreciation schedule, you can claim thousands of dollars worth of deductions on your investment property. Money you don’t pay in tax is money in your pocket after all.
Imagine what you could do if you paid thousands of dollars less in tax!
If you’re really keen to know more, you can always give me, Colleen Jackson, a call at Depwest and we can talk to you about your own investment property and the hidden cash within it. I can be contacted on (08) 9489 4500.