With plenty of government financial incentives to build and the potential for big tax deductions, new properties have become an even more lucrative prospect for property investors.
Quantity surveyor Peter Foldes of Washington Brown Depreciation says while he wouldn’t advise someone to make an investment purchase based solely on the tax benefits, it was undeniable that the depreciation benefits were much higher on brand new properties.
Foldes, guest presenter on a 27 August webinar hosted by Hotspotting, ( view the replay right) says most investors are seeking capital gains as their first priority, but there are also significant financial benefits during ownership, thanks to depreciation.
“Claiming depreciation reduces your taxable income,” Foldes says. “It helps you pay less tax and often it can be thousands of dollars.”
The tax claims are substantially higher with new properties than for existing ones.
“That’s not to say there aren’t tax depreciation benefits for buyers of existing investment properties, they are just not as high,” he says.
Foldes says a person earning $80,000 taxed at 37% will pay $29,600 in tax. But if they own an investment property and can claim $17,000 in depreciation deductions, that reduces their taxable income to $63,000, so they only pay $23,310 in tax.
“By claiming depreciation they have saved $6,200 in tax – although that amount will vary depending on the age of the property and the purchase price when they bought it,” he says.
“Even if the saving is only $1,000 or worst-case scenario $500, it is better in your pocket rather than giving it as a tip to the Tax Office.”
Foldes says an existing house bought in 2020 for $377,000 would likely provide deductions around $4,000 a year for the first ten years, totalling $40,000.
A new at the same price will achieve significantly higher deductions, around $76,000 over the first ten years.
“It stills surprises me how many property investors don’t know about tax deprecation,” Foldes says.
“Come tax time nobody wants to leave potential deductions on the table, maybe now more than ever with the financial hardships that so many Australians have faced due the pandemic,” he says. “It is so vital that you are claiming all of the deductions that you are eligible to claim.”
For a few hundred dollars a quantity surveyor can prepare a depreciation schedule which lasts for the life of the asset and can reap huge financial benefits.
Foldes says Washington Brown has changed the way they create their reports during the pandemic and in many circumstances are able to do a report without having to physically visit the property.
“Now we will look at a property when a client contacts us and examine whether charging for an inspection actually represents any benefit or additional value to the client,” he says.
“In many cases where we have access to enough information, we are able to produce that fully comprehensive ATO-compliant report without needing to conduct that inspection.
“There are certainly situations where inspecting a property is necessary, if we are not familiar with the building and can’t get sufficient construction-related information and photographs, so it is still in the client’s best interests for us to conduct an inspection.”
Foldes says it costs nothing to ask Washington Brown whether it’s worthwhile doing a report on a property.
He says there is an emerging trend of people living in their home but renting out a granny flat on the property or building a granny flat to be rented out.
Some owners don’t realise that even though they live on the same block of land they can claim depreciation on the granny flat.
“Certainly, you can apply the same rules to granny flat as a standalone single dwelling on its own property,” he says.
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