Claiming tax depreciation is key to unlocking your investment property’s cash flow potential and saving thousands of dollars each year.
If you have just claimed depreciation for the first time, you will benefit from extra cash flow which could give you the flexibility to diversify your portfolio or pay off any accumulated debts.
But perhaps the biggest question on your mind is when will I actually see benefits of claiming depreciation?
Put simply, you will begin to see the benefits at the time of your next tax return.
On average, most property investors can claim between $5,000 and $10,000 in deductions in the first year alone for a residential investment property. This could mean the ability to turn a negative cash flow investment into a positively geared asset.
Your depreciation schedule lasts for the lifetime of the property, which is set at forty years. You will continue to see the benefits of depreciation over the forty years, with deductions saving you money on each tax return. The extra cash can be very useful if your property is in need of a fresh coat of paint or appliance updates.
Alternatively, you can opt to use a Pay As You Go withholding variation to see the benefit of deductions regularly, rather than in one lump sum at the end of the financial year.
The PAYG system allows investors to take advantage of deductions on a regular basis by estimating your expected tax refund for the financial year and allowing your employer to reduce the amount of tax taken out of your wages.
If you would like to access your tax deductions on a regular basis through the PAYG variation, speak to your Accountant. They will provide your estimated financial information to the Australian Taxation Office on your behalf to start the process.
For property investors, the tax liability is reduced based upon the anticipated deductions like interest, maintenance, rates, and depreciation on a rental property.
After a PAYG variation request has been submitted by your Accountant, your take home pay will increase as your employer reduces the amount of tax withheld.
Some investors choose to use the PAYG withholding variation for the flexibility it provides and for access to extra money should unexpected issues with your investment property arise throughout the year.
If you are considering whether to wait until next tax time to see the benefit of your depreciation claim or use the PAYG variation, it is important to consult your financial advisor. They will take your individual financial circumstances into account and offer you tailored professional advice.