Now To Maximise Depreciation Claims

Posted on 16/04/2019  

Property owners can maximise the claims available under the depreciation rules if they understand how the system works.

Washington Brown CEO Tyron Hyde suggests seven ways to “crack the new depreciation code”, most of them strategies that are unlikely to occur to everyday investors without the advice of a specialist professional.

One of the strategies allows first-home buyers to claim depreciation benefits which are generally available only to investors.

Here are Hyde's seven key strategies ...

The Shiny Gold strategy:

Buy new property. The depreciation rules are unchanged if you buy a new property and now strongly favour new over second-hand in terms of the Plant & Equipment claims.

Corporate raider strategy:

Buy property in a company name. Companies can continue to claim depreciation on second-hand properties as before the 2017 changes. But be aware that there are GST implications.

Big boy/girl strategy:

Buy non-residential property, because these new laws apply only to residential real estate. It seems unfair, but there are no changes to the depreciation claims that can be made if the property is commercial, retail or industrial.

CGT saver strategy:

When you buy a second-hand property, you can’t claim the depreciation on the oven. But there was value left in the oven (perhaps $600). When you renovate and install a new oven, you get a $600 capital loss on the old oven and that will reduce the CGT you pay later, because it can be carried forward.

The BAM strategy:

BAM is Building Allowance Maximiser. Washington Brown itemises the Plant & Equipment items that wear and tear quickly. You can claim depreciation over 40 years, but not everything will last for 40 years – some items survive only 10-15 years. So Washington Brown provides an analysis of the items to be removed more quickly than 40 years – which allows the owner to claim deductions.

The Boo Hoo Strategy:

There are ways for First Home Buyers to claim depreciation on their first home. They must live in the home for six months, but that period doesn’t have to start at the beginning of ownership - it has to start at some stage in the first 12 months. The FHB can rent the property out for 6 months and claim depreciation, perhaps getting a $20,000 deduction (because a lot of the available depreciation occurs in the first year), and then move into the home as an owner-occupier. The downside is that, to get the CGT exemption, the home has to be occupied by the buyer from day one.

The Smash and Grab Strategy:

Sometimes property owners can achieve more total deductions by buying a 10-year-old property, than buying brand new. This can occur if the owner invests in renovations and increases the rent. In a typical scenario, the investor can buy a property that’s 10 years old, install new equipment such as ovens and dishwashers, claim deprecation on those items, get a capital loss on the old items, and have 30 years of claims left on the Building Allowance.

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