Depreciation Changes and Maximising Property Investment Returns
With the end of the 2016-2017 financial year fast approaching, now is the time to start thinking about how you can get the most out of your investment.
One way to do this is to ensure you claim the maximum depreciation deductions available from your investment property. The process for doing this is simple but amazingly recent statistics from the ATO suggest that only 30% of property investors claim depreciation for available capital works deductions, and just 18.75% claim the depreciation of plant and equipment assets.
If you own an investment property and are not claiming depreciation, you are leaving money behind and that makes no sense. The good news is – all you need to do is obtain a depreciation schedule from a qualified Quantity Surveyor and provide it to your accountant when you lodge your tax return. More good news is that if you failed to claim depreciation in recent years you can adjust two previous tax returns if you have not been making or maximising your claims.
In all circumstances we have seen to date, the benefits of obtaining a depreciation schedule significantly exceed the cost, and the depreciation schedule on an investment property can be used to claim depreciation for up to 40 years.
To highlight the benefits of claiming depreciation, the table below shows how a property investor’s cash flow was improved by claiming depreciation on a two bedroom apartment purchased for $528,000 one year ago. The property was rented for $470 per week with a total income of $24,440 per annum. Expenses for the property including interest, rates and management fees totaled $37,935.
Budget Changes to Depreciation
The 2017 Federal Budget, handed down by Treasurer Scott Morrison on Tuesday night, 9th May at 7:30pm AEST includes proposed changes which will affect residential property investors Australia-wide.
Currently, investors are eligible to claim qualifying plant and equipment depreciation on assets found in an investment property they purchase, even if they were installed by a previous owner.
Under the new rules, investors will be able to depreciate new plant and equipment assets and items they add to their property, however subsequent owners will not be able to claim depreciation on existing plant and equipment assets.
The changes will only apply to investors who purchase property after May 9, 2017, and whilst not yet confirmed, it is assumed that if the property is new, the owner will be able to continue to claim the full depreciation.
The information contained in this article is General in nature and has been prepared without taking into account your objectives, financial situation and needs. When assessing any investment you should also consider that past performance is not a reliable indicator of future performance.
Brett is a Licensed Real Estate Agent and manages United Global Capital's property projects and client acquisitions.
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