Can you claim property depreciation as a tax deduction?
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