Can you claim property depreciation as a tax deduction?

Tax time

Properties that generate income for the owner are eligible for significant taxation benefits. Director of BMT Tax Depreciation Bradley Beer says “research shows that 80% of Property Investors are failing to take full advantage of property depreciation and are missing out on thousands of dollars in their pockets.”

Depreciation is often missed because it is a non-cash deduction – the Investor does not need to spend money to claim it. As a building gets older, items wear out – they depreciate. The Australian Taxation Office (ATO) allows property owners to claim this depreciation as a deduction.

Depreciation: An Investor Profile

An Investor has purchased a property for $420,000 and is receiving $490 per week in rent for a total income of $25,480 per annum. The estimated expenses for the property include interest, rates and management fees, which total $32,000 per annum. The following scenario shows the Investor’s cash flow with and without depreciation. A typical $420,000 unit will depreciate by around $11,500 in the first full financial year.

Scenario 1 – Without a Depreciation claim

Pre-Tax Cash Flow

Taxation Loss (income – expenses): $6,520

Per Week: $125

Post-Tax Cash Flow (top tax rate 37%)

Tax Refund: $2,412

Net Cash Outlay (initial loss + refund): $4,108

Per Week: -$79

Scenario 2– Including an $11,500 Depreciation Claim

Pre-Tax Cash Flow

Tax Depreciation: $11,500

Cash Flow Position: -$6,520

Total Deduction (initial loss + depreciation): $18,020

Post-Tax Cash Flow (top tax rate 37%)

Tax Refund: $6,667

Net Cash Flow (initial loss + refund): +$147

Per Week: +$3

In this example the Investor uses property depreciation to go from a negative cash flow scenario, paying out $79 per week, to a positive cash flow scenario, earning $3 per week on the property. By claiming depreciation this Investor will save $4,255 for the year.

Contact BMT Tax Depreciation on 1300 728 726 for obligation-free advice about any property scenario.

By Bradley Beer, Director

BMT Tax Depreciation