Case study:
A new townhouse purchased for $890,000

The following scenario shows John’s cash flow both with and without a depreciation claim of $15,600.

A new townhouse purchased for $890,000
Scenario without depreciation claim
Annual income ($850 x 52 weeks) $44,200
Annual expenses $58,456
Pre-tax cash flow (expenses less income) -$14,256
Total taxation loss -$14,256
Tax refund (tax loss x tax rate of 37%) $5,275
Annual costs of the investment property (pre-tax cash flow + tax refund) -$8,981
Weekly cost of the investment property -$173
Scenario with depreciation claim of $15,600
Annual income ($850 x 52 weeks) $44,200
Annual expenses $58,456
Pre-tax cash flow (expenses less income) -$14,256
Total taxation loss (pre-tax cash flow + depreciation) -$29,856
Tax refund (tax loss x tax rate of 37%) $11,047
Annual cash flow of the investment property (pre-tax cash flow + tax refund) -$3,209
Weekly cash flow of the investment property -$62
Difference of $111 per week

Before claiming depreciation, John experienced a loss of $173 per week for the first year of ownership for his property. Simply by claiming depreciation John was able to turn his cash flow into a more positive one, and reduce his loss to a much more manageable $62 per week. By claiming depreciation and using the PAYG withholding variation, with the help of his Accountant, John was able to reduce the tax applied to his weekly wage and improve his cash flow situation.


Assumptions and disclaimer

Case studies and figures are based upon tax depreciation schedules completed by BMT Tax Depreciation and do not represent any particular person or investment property scenario. The information provided is a general guide and does not constitute financial, legal or taxation advice. All figures are supplied as examples and may not represent your personal circumstances.

You acknowledge and agree you must undertake your own analysis and obtain independent legal, financial and taxation advice before using, relying or acting on any information supplied on this website.

Neither BMT Tax Depreciation, nor its directors, shareholders or advisors make any representation or warranty as to the accuracy or completeness of information found in these typical examples. Nor will they have any liability to you or any other party for any representations (expressed or implied) contained in, or any omissions from, that information.

The tax depreciation deductions in this case study have been calculated based on the diminishing value method of depreciation and are based upon a first full year of ownership. Marginal tax rates relevant to 2014 – 2015 financial year have been assumed.

Related case studies:
An old townhouse purchased for $690,000

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As you can see, property depreciation can make a significant difference to a property investor’s cash flow each financial year.

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