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.’