Series underdogs Tess and Luke shocked the nation when they pocketed an eye-watering $730,000 for their renovation efforts on The Block. The Cairns couple sold their luxury St Kilda terrace at auction for $3.62 million, a staggering $630,000 over the reserve price.
The terrace was championed for its exceptional design and first-class craftsmanship, both of which created a home with an exclusive edge. With three living and dining areas, four bedrooms, state-of-the-art kitchen, and four bathrooms, the property was bound to attract buyers from far and wide.
But there was one clever feature that set the winning property apart from its neighbouring terraces.
Tess and Luke’s winning feature
The winning property featured its own self-contained studio, a design clearly favoured by bidders at auction. It should come as no surprise as savvy buyers often look for property with investment potential. A self-contained studio offers just that, especially when considering the lucrative depreciation benefits.
The Australian Taxation Office (ATO) allows owners of income producing properties to claim deductions for the wear and tear that occurs as a building gets older and items within it wear out. These deductions can be claimed under two categories – capital works deductions and plant and equipment depreciation.
Capital works deductions refer to the building’s structure and items considered to be permanently fixed to the property such as kitchen cupboards, doors and sinks. Plant and equipment assets are items which are easily removable from the property such as carpet, hot water systems and blinds. These assets have a limited effective life as set out by the ATO and can generally be depreciated over time.
A BMT Tax Depreciation assessment showed that Tess and Luke’s entire terrace has $3.61 million in depreciation deductions claimable over the lifetime of the property should the buyer decide to use it as an investment. If the buyer lives in the property as their primary place of residence, they can still utilise the self-contained studio as an income generator.
Investment opportunities for a self-contained studio
An investor can lease or holiday let a self-contained studio. Both options offer an attractive income stream for the owner, particularly in metropolitan areas where affordable property is in demand.
Whether it be a listing on Airbnb or an advertised rental property, when a self-contained studio is income-producing the owner is also entitled to substantial depreciation deductions, even if they are currently occupying the primary residence on the property.
Eligible assets within the studio such as flooring can be depreciated based on their effective life which is set by the ATO and updated regularly through tax rulings. Capital works can also be claimed for the building’s structure and any permanently fixed items.
Owners can claim these deductions for the period the studio is rented or genuinely available for rent. That is, the property is given broad exposure to potential tenants and considering all the circumstances tenants are reasonably likely to rent the property.
The best way to ensure you claim maximum depreciation deductions is to arrange a tax depreciation schedule. A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of a property and is 100 per cent tax deductible. During the FY 2018/19, we found residential property investors an average first year deduction of almost $9,000.
For more information, simply Request A Quote or speak with one of the expert team at BMT Tax Depreciation on 1300 728 726.