As we start the New Year, many investors might be formulating their annual New Years resolutions.
Investors often think about the ways they can reduce the costs of owning an investment property and wonder how they could boost the cash flow earned. However when they do so, the deductions they can claim via depreciation are not always at the top of their list when it comes to saving money.
Around 80 per cent of investors still do not maximise the depreciation deductions available from their investment property, so this is a very good reason why investors should add requesting a tax depreciation schedule to their annual resolutions for 2016.
To assist investors, here are four reasons investors should claim depreciation in 2016:
1. Claim an average of $5,000 to $10,000 in the first year
Property depreciation is a non-cash deduction which can be claimed due to the gradual wear and tear of both the building structure and the plant and equipment items contained within the property.
On average, investors can claim between $5,000 and $10,000 in deductions within the first financial year alone. The Australian Taxation Office allows investors to claim depreciation on the building structure over the effective life of the property (forty years) and deductions for plant and equipment assets based on their individual effective life.
By claiming property depreciation, investors are essentially reducing their taxable income and therefore may benefit by receiving more in their annual tax return or avoiding having to pay additional taxes.
2. Every property investor can benefit from a depreciation schedule
Some investors think that because their investment property is old, they won’t benefit from claiming depreciation. This is untrue. Both new and old properties will attract depreciation deductions for their owners.
Depreciation deductions can be claimed for all types of investment properties including residential, commercial, industrial, retail, manufacturing and hotel and tourism accommodation.
3. Adjust the previous two years tax returns
If you haven’t been claiming or maximising depreciation for your investment property, the previous two years tax returns can be adjusted and claimed back.
4. The fee is 100 per cent tax deductible
Although there is a cost involved in arranging a depreciation schedule, the fee is 100 per cent deductible. Investors who arrange their schedule prior to the 30th of June each year can claim the fee back in the same year, while investors who arrange and pay their schedule in the new financial year can claim in the following year. This is all the more reason why investors should arrange their schedule in the lead up to a financial year rather than wait until tax time.