Puzzle Finance Blog


Investors urged to get the most from tax depreciation


 With the end of the financial year just around the corner, savvy property investors need to maximise their deductions to squeeze every dollar out of their tax return.

But experts say people often claim less than what they are eligible for, while others miss out altogether.

“We find that many don’t do a depreciation schedule,” said Ken Raiss, director of Chan & Naylor Accountants. “For new clients who come and see us, at least 30 per cent don’t even do one ...and many haven’t got an appropriate one.”

And those who don’t claim a "scrapping schedule" (when they complete a renovation) was closer to 50 per cent, he said. 

Bradley Beer, managing director of BMT Tax Depreciation, said capital works deductions and plant and equipment depreciation were two types of deductions that continue to be missed.

A total depreciation claim of $3168 on average by property investors – derived from recent ATO statistics relating to claims made for the 2011-12 income year – was well below the typical claim found by BMT Tax Depreciation, he said.

“Data collected from tens of thousands of depreciation schedules prepared by BMT Tax Depreciation suggests the average claim should be around $10,100 in the first full financial year and $7350 per year on average over the first 10 years of owning a property,” he said.

Beer said smaller assets such as exhaust fans, door closers and even garbage bins were frequently overlooked. “People will claim an oven, but they won’t claim the cook top and the range hood because they think it’s all a part of the same thing,” he said.

He says a quantity surveyor could also notice renovations completed by a previous owner which are otherwise often missed because investors have a tendency to claim items they have just spent money on.

“Even if the previous owners have installed those assets or completed that renovation, they can only claim that percentage of wear and tear for those few years they’ve owned it,” Mr Beer said. “The new owners start to claim it from when they became the owners.”

This means if the previous owners claimed depreciation on a carpet (with an effective life of 10 years) for the first three years, there may be seven years left to claim.

Raiss said investors can also claim assets in common areas such as lifts, signage and the front door.

Silvana Masalkovski, principal of LJ Hooker Point Cook, encourages investors to make capital improvements to enhance the long-term value of a property.

“For example, adding a bedroom is a guaranteed way to make a capital improvement,” she said. “The value of the house will increase and they will also get a higher rent.”

Investors may spend $700 or $800 to close a wall to create a bedroom, but it would add a minimum of $10,000 to the value of a property, she said.

She also advises investors to have their real estate agents pay for all the expenses such as water bills, rates and repair expenses so nothing will be left out in their annual statement.

Damian Paull, 53, who owns an investment property at Sanctuary Lakes, said good record-keeping was one of the most important lessons he learnt over the years. He also thought it was more tax effective to turn his four-bedroom home into an investment property.

“We’ve rented out what was the family residence and we’re currently renting ourselves,” he said. “[We can] make the debt that we’ve got in our mortgage more effective – work harder for us – and take advantage of the available tax deductions for investment properties.”

Posted by Christina Zhou - Domain (The Age) on 4th June, 2014 | Comments | Trackbacks
Tags:

Bookmark and Share

The trackback URL for this page is http://www.puzzlefinance.com.au/trackback?post=28887813


Trackbacks

There are no trackbacks for this post


Comments

There are no comments for this post


Post a Comment

HTML is not allowed in comments, http://... will be automatically linked.


Name (required):


Email Address (not displayed):


Comment (required):


To help prevent spam, please enter the word dash here:

Puzzle Finance Blog

About Puzzle Finance


Archives

September 2017
August 2017
July 2017
June 2017
May 2017
March 2017
February 2017
January 2017
December 2016
November 2016
October 2016
July 2016
June 2016
May 2016
April 2016
March 2016
February 2016
January 2016
December 2015
November 2015
October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010

Tags

Purchase or Rent (1)
The Age (1)