With ongoing interest rate hikes and subsequent increases in mortgage repayments, it has become increasingly crucial for property investors to find ways to enhance their cash flow. A strategy to achieve this is to maximise the depreciation tax deductions on their investment properties.
1. Get an onsite inspection
Research shows that 80% of investors don’t claim the maximum depreciation deductions on their investment properties. Only a specialist quantity surveyor will spot the dollars hidden in the details. Quantity surveyors are highly specialised and when construction work is undertaken or assets are added or removed from a property during its income-producing period, an expert will be able to calculate the depreciation tax deductions accordingly.
New as well as older properties can qualify for substantial depreciation tax deductions, but these are often not visible without a physical site inspection. A site inspection by a specialist will ensure that every potential deduction is uncovered and maximised, so that the highest possible depreciation amount can be claimed.
In 2023 the Australian Institute of Quantity Surveyors released a white paper stating that the most reliable and secure way to maximise the depreciation deductions on an investment property is by engaging a qualified, reputable quantity surveyor with an onsite inspection to ensure a reliable depreciation schedule. Choose a property depreciation expert like BMT Tax Depreciation who will conduct a site inspection before completing the depreciation schedule.
2. Talk to a specialist
Property tax depreciation refers to the wear and tear of an income-producing property and its assets over time. Irrespective of the type of property, renovating and completing upgrades may be an effective way to increase rental income and grow the value of a property, while maximising tax deductions on the investment through depreciation.
When it comes to commercial property, both the owner and tenant can claim depreciation tax deductions. The BMT Tax Depreciation Schedule can include separate reports where multiple entities or tenants control different assets or have different acquisition dates.
Using industry specific legislation, a specialist will assess the property to ensure every deduction is uncovered and maximised. This includes any fit-out installed or assets removed during an upgrade or renovation. It can also include new amenities like bathrooms, kitchens, accessible parking and security, which be an effective way to add value to the property and secure top-end tenants.
In the case of a residential strata complex, all common property items where legislation allows, will be considered when the depreciation schedule is compiled. It is therefore important to keep a record of any documentation related to the purchase agreement and subsequent changes that may have been made to the strata agreement.
3. Tailor your schedule to your investment strategy
Plant and equipment depreciation can be claimed using different methods. Determining a property investment strategy at the outset of the property journey, will impact the depreciation method chosen.
Diminishing value and prime cost are the two methods of calculating property tax depreciation over the life of the property. Both methods claim the same amount of depreciation over time but achieve different short and long-term cash flow outcomes for the investor. You can only choose one of these depreciation methods for the lifetime of your depreciation schedule, so it is important to analyse and compare how this choice will affect cash flow before making a decision.
If you purchase a property as a short-term investment with the purpose of selling again in the coming years, the diminishing value method will offer the most deductions in the earlier years of the property’s effective life. The diminishing value method may therefore be a more attractive option for an investor looking for higher depreciation tax deductions over the short term.
Alternatively, the prime cost method, also referred to as the straight-line method, offers equal deductions calculated as a percentage of the cost. If a property is purchased as a long-term investment, the prime cost method will return lower, but more consistent deductions in the later years of the life of the property.
We always recommend that investors consult with an accountant or financial adviser to discuss their personal circumstances and investment strategy. A BMT Tax Depreciation Schedule includes both the prime cost and diminishing value methods of depreciation to help make an informed decision before claiming. Request a quote today.
Hi, I have a commercial property in Mayfield, Newcastle. Do you operate there?
Thanks,
Gough
Hi Gough,
Yes, we do operate in the Newcastle area.
For more information contact one of our depreciation specialists on 1300 728 726 or Request a Quote.
Thanks
Team BMT