How to maximise your tax benefits

It is fair to say that the Australian economy is still struggling in its post resources boom transition and that is underlined by the fact that the RBA is very likely to continue to cut interest rates.

While falling interest rates may give some relief to property investors, the outlook for the property market in many capital cities is becoming more challenging and as a result investors need to utilise every tax benefit they are entitled to so they are not put under any undue financial stress.

For example, it is still a fact that a large proportion of Australian property investors fail to claim their full tax depreciation benefits that can equate to 60 per cent of the purchase price of a property.

In dollar terms, if you bought a new apartment for investment purposes that cost $500,000, these total tax depreciation benefits could amount to a massive $300,000.

The typical cost of a tax depreciation report is around $600 which is also tax deductible making it a great investment for astute property investors.

Tax depreciation on a residential property is a deduction against assessable income allowing the owner to reduce the amount of taxation payable.

An investor is able to claim for two distinct types of depreciation on buildings. The first is capital allowance which is a deduction based on the historical construction costs of the property and may include surveying, engineering, architectural and building fees. The second is plant and equipment which includes items such as floor coverings, window treatments and fixed equipment i.e. cookers.

Most investors do not realise that tax benefits obtained through depreciation can be equivalent to 60 per cent of the total purchase price of the property.

You should engage the services of a tax deprecation company who will undertake an inspection of your property and provide you with an ATO compliant tax depreciation report which you can provide to your accountant. This report is a ‘once off’ and will outline the amount of tax benefits you can claim on an annual basis. Anyone considering employing a tax depreciation company should ensure that they are a member of the Australian Institute of Quantity Surveyors (AIQS).

We estimate that only one in five residential investors make use of the tax depreciation entitlements which are available to all investors on all investment properties.

Many property investors who have owned their properties for several years and have not undertaken a tax depreciation schedule still have the potential to claim back thousands of dollars in tax depreciation benefits.

A depreciation schedule can be undertaken at any time by a property investor. If you own a property for a number of years, you can still undertake a depreciation schedule and put in an adjusted tax return to enable them to obtain unclaimed tax depreciation benefits.