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The benefits of making a depreciation claim for student rental property owners

Bradley Beer — Fri, 21 Feb 2014 06:21:22 +0000

The month of March ushers in the autumn season, marks the kick off to the footy season and echoes the bustling sounds of higher education institutions bubbling and frothing with hope and potential. For 223,200 students, 2014 will be their first year of university, taking the total of university students around the country to over 1 million. This means demand for student rental property accommodation has become quite competitive between students and families looking for well situated properties. Student accommodation is increasing in demand as Australia becomes the third most popular international student destination behind the United States and the United Kingdom. Student accommodation is an asset class with potential, but caution is advised when considering investing in student rental property. Here are a couple of points to consider: Higher management fees Screening for the right tenants Read more: How to survive and profit from property’s student boom Many student rental property investors are often unaware they are eligible to receive significant taxation benefits. Research has shown that nearly 80% of all property investors fail to take advantage of property depreciation, and therefore miss out on thousands of dollars in available deductions. BMT complete tens of thousands of depreciation schedules for investment properties each year. On average, those schedules find between $5,000 and $10,000 as a first full year deduction for rental property owners. This is no small amount, so for investors wondering what is property depreciation and how can they go about making a claim, I’ll explain. Property depreciation is a non cash deduction the Australian Taxation Office (ATO) allows the owner/s of an investment property to claim due to the wear and tear of a building structure and its fixtures and fittings over time. It is described as a non cash deduction because the investor does not need to spend any money to be eligible to claim it. The following scenario provides one example of an investor’s cash-flow with and without depreciation. This investor owned a property purchased at $420,000, with a rental income of $490 per week and a total income of $25,480 per annum. They had expenses for the property such as interest, rates and management fees totaling $32,000 By claiming property depreciation the owner was able to turn their negative cash-flow position into a positive one. Without depreciation they were paying out $79 per week. By taking advantage of taxation legislation and making a depreciation claim, the investor was able to turn their loss to an income of $3 per week. In total, BMT Tax Depreciation saved this investor a total of $4,255 in just one year. I recommend that you contact a Quantity Surveyor, such as BMT Tax Depreciation, to compile a tax depreciation schedule. The Quantity Surveyor will perform a site inspection and take photos of all plant and equipment to ensure no depreciable asset is missed. They will also use their knowledge of current ATO legislation to select the best methods to calculate depreciation to maximise the claim available for the owner. For a free over the phone assessment of the likely deductions for an investment property that is being used as student rental accommodation, please contact one of my professional staff members on 1300 728 726 or complete this form to request an estimate today.

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Consider depreciation deductions when buying an investment property off-the-plan

Bradley Beer — Tue, 07 Jan 2014 23:15:06 +0000

Buying off-the-plan can be a very attractive option for your first investment property and there are some extra depreciation deductions to take into account which could help investors save thousands. Buying off-the-plan essentially means you are entering into a contract to purchase a property prior to, or during the construction phase of a property or a development. By selecting to purchase an off-the-plan investment property, investors often find there are benefits. It can often mean that you receive the end product at a cheaper price if there has been capital growth over the construction period. In some states, there are stamp duty savings available and investors also have the benefit of having time on their side, enabling them to save money until settlement and while the property is being completed. Out of all the benefits available when purchasing a property off-the-plan, the one investor’s most commonly fail to consider is what property depreciation benefits will become available. The Australian Taxation Office (ATO) allows the owner of any income producing property to claim depreciation due to the wear and tear of the building structure and fixtures and fittings contained within the property. Depreciation is considered a non cash deduction, meaning investors do not need to spend any money to be able to claim it. As with any pre-existing or built investment property, there are significant depreciation deductions available to the owner of a property purchased off the plan. It is important to note however that the property must be completed and be generating an income to claim the depreciation deductions available. A completed property purchased off-the-plan will typically attract between $8,000 and $14,000 in deductions in the first years depreciation claim, so it is fair to say that the new owner can make significant savings and increase their available cash flow by claiming depreciation for the property once it is income producing. As newly built properties contain new fixtures and fittings, the depreciable value of these plant and equipment items will be higher. The owners are also eligible to claim the maximum capital works deductions for the building structure, which means more deductions are available to claim over the life of the property (40 years). It is recommended that investors consult with their Accountant to seek advice when purchasing a property off-the-plan and also speak with a reputable Quantity Surveyor to get an estimate of the likely depreciation deductions available for the property. A specialist Quantity Surveyor such as BMT Tax Depreciation will liaise with the Property Developer to request information about the property. This information is used to provide a detailed estimate of the depreciation deductions that will become available once the property has been completed and is income producing. By obtaining this information, you as the owner will have a far more comprehensive idea of the end cost involved in holding the property. The additional cash flow created from a depreciation claim can be put towards future loan repayments or to help save for future investment property purchases. Are you buying an investment property off-the-plan? BMT can provide a complimentary estimate of the likely depreciation deductions. Contact BMT Tax Depreciation today to discuss your next investment property purchase on 1300 728 726.

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