This edition’s guest columnist is Paul Bennion, Managing Director of DEPPRO tax depreciation specialists.
One of the first questions that investors invariably ask a real estate agent when buying an investment property is how much weekly rent can it generate?
This is an important question because the weekly rent is the cash flow which helps pay for the mortgage repayments and holding costs of the property such as council rates.
However, one important question that investors generally fail to ask is what tax depreciation benefits can the property deliver?
This is an equally important question because these tax depreciation benefits can be equivalent to around 60% of the purchase price of a property.
For example, if you buy an investment property for around $500,000, the potential tax depreciation benefits can be as much as $300,000.
Unfortunately, very few property investors claim their full tax depreciation benefits and therefore miss out on thousands of dollars in potential cash flow each year.
This huge potential cash flow can only be unlocked by obtaining a tax depreciation schedule that is compliant with the Australian Tax Office (ATO) standards. The ATO has very clear guidelines and procedures that must be followed in order to achieve the maximum legal tax deductibility that covers all areas of investment property ownership.
A tax depreciation schedule is an on-site inspection report undertaken by a quantity surveying company which is a physical snapshot of the property. This detailed deprecation report identifies all of the items in the property that can be depreciated. An estimated value is placed against these various items and they are depreciated depending on their age and value.
This comprehensive report can identify many items that investors would not normally consider can be depreciated – everything from garden sheds to cubby houses.
The cost of this tax depreciation schedule can be as little as $600 (which is tax deductible) even though the cash flow benefits it can deliver each year may be several thousand dollars for each property.
Anyone who is considering using the services of a tax depreciation company should ensure that they are a member of The Australian Institute of Quantity Surveyors (AIQS). The AIQS ensures that its members, such as DEPPRO, maintain a high level of standards and services.
Membership of the AIQS is restricted to companies that have the appropriate educational qualifications and who have demonstrated the required level of professional competence after a statutory work period.