A BIG chunk of Australia’s 1.75 million real estate investors could earn themselves thousands of extra dollars each year by taking a closer look at their tax deductions.
It is estimated at least half of investors do not claim all possible depreciation-related deductions. For a new, median-priced house, these can typically be $8000 to $17,000 for the first year and at least $5000 for each of the next six years. There are also big deductions available for older properties.
“The tax office will do everything in its power to ensure people are not claiming too much, but will never tell people if they are under-claiming their tax,” says Paul Bennion, managing director of tax depreciation company DEPPRO.
“People aren’t maximising the potential of their property,” Bennion says.
“It’s important to maximise what that investment property can generate by getting additions such as a depreciation report and an accountant who can claim things properly.”
There are about 30 providers of depreciation reports in Australia, which usually cost about $600 and are tax-deductible.
Most major players offer a full refund if they are unable to produce depreciation claims worth double the report’s cost.
Bennion says tax laws do not allow accountants to prepare depreciation reports – they must be done by a quantity surveyor, builder or “suitable qualified person” able to calculate construction costs.
“Depreciation is a non-cash deduction. You are not spending money to claim it as you do with repairs and maintenance and interest,” he says.
Tyron Hyde, the chief executive of quantity surveyors Washington Brown, says some investors think depreciation is only relevant for new properties, but those that 20 years old can still deliver thousands of dollars of deductions.
“Seasoned investors would know about depreciation but a novice investor would still possibly not,” he says.
Hyde says investors should be wary of depreciation report companies that offer cheaper online reports without attending the property.
“My view is you will lose more than you save. I find it hard to believe that an investor sitting at a desk can see what you can write off without anyone visiting it,” he says.
Renovations are a big area of potential claims, Hyde says.
Apart from being able to depreciate the value of the new work, investors should also check the residual values of what they demolish.
“You could put in a big claim before you start the new work,” he says.
TOP DEPRECIATION DEDUCTIONS
* Carpets – write off the cost over 10 years
* Appliances – five to 12 years, depending on item
* Airconditioning – effective life of 10-20 years
* Blinds – 10 years, for curtains it’s six years
* Hot-water systems – usually 12-15 years
* Capital allowance for building costs – 2.5% a year
* Renovations – mix of building costs and other items