What do bird baths, garden gnomes, garbage bins and clotheslines have in common? They all age, wear out, and depreciate in value. They are also items that property investors can claim against their taxable income. For owners of income-producing property, depreciation is a valuable source of tax deductions – and 8 in 10 property investors don’t maximise them, research from BMT Tax Depreciation indicates.
Depreciation can be a valuable tool for property investors seeking to improve cashflow and reduce their taxable income, according to BMT Tax Depreciation managing director, Bradley Beer.
“Depreciation allows property investors to make claims to the Australian Tax Office (ATO) for the wear and tear that happens to a property and its fixtures over time. As depreciation tax deductions can add up to thousands of dollars, it pays for investors to understand the scope of deductions available to them and the cashflow advantages they can deliver.”
During the first 5 years of ownership, when property investors’ cashflow is typically at its weakest, depreciation can make a big difference, according to Beer.
“It’s typically a time when investors’ loan to value ratios (LVRs) are at their highest, and returns are at their weakest. Property depreciation can relieve some of the financial burden associated with the purchase of a property during those early years,” he explained.
What items can property investors claim?
- A property’s structural assets e.g. the property’s physical structure,
external garages and patios - Plant and equipment items within the property – e.g. toilets, flooring
and light fixtures - Common property in apartment buildings or blocks of flats – e.g.
driveways and pools – any part of a property that tenants have common use of, and to which access is included in their tenancy agreements - Common household items such as smoke alarms, door closers,
shower curtains and garbage bins.
Beer recommends that property investors have a depreciation schedule prepared by a Quantity Surveyor, who inspects the property, to ensure all items are accounted for and claims are maximised.