At Burgess Rawson, we specialise in the sale of investment properties. When assessing an investment property, one critical feature to look for is the amount of depreciation you can potentially claim. We go to great lengths to help educate and guide our investors through this complex issue and, in most cases, our comprehensive Information Memorandum (Property Report), prepared for each and every property we sell, will include an indicative Depreciation Schedule.
Many investors employ us to professionally manage their properties, and not necessarily the ones they’ve purchased from us directly. A common issue we encounter when setting up a new management with our clients is depreciation. Here are the most common questions we receive from our clients:
Will I get a better return if I claim depreciation?
Each year, millions of dollars in property depreciation goes unclaimed by property investors who don’t know how and what to claim – or who find the whole thing too hard. Taxation specialists and quantity surveyors are the ones who can make sure you are maximising your deductions to get the best return from your property.
You’ll be surprised what you can claim – loss of value of fixtures and fittings, renovations, extensions, even demolition. In many cases you can even claim previously unclaimed years. These tax breaks can really accelerate your wealth creation – in many cases thousands or even tens of thousands of dollars. Obviously every situation is different, depending on factors like purchase date, property type and size as well as your financial situation.
The amount of depreciation you claim can potentially enhance the return/yield for your investment, but there can be tax consequences further down the line, such as at the time of disposal of the property, so it’s important you speak to an expert. We work with several leading companies that can provide advice in this regard.
How does it work? What can I claim?
You can claim deductions based on two allowances:
1. Depreciation assets:
These are items that lose value more quickly – such as carpet, lifts and whitegoods. You may be able to claim up to 20% of the property’s purchase price this way.
2. Building allowances:
Depending on when your property was built, you may also be able to claim a deduction for part of the original construction or refurbishment costs.
On top of all this, the consultant’s fees are usually 100% tax deductible. With a professionally prepared Depreciation Schedule, you can end up with $1000s more in your hand for the life of your property investment. It’s a great way to unlock cash and grow your property portfolio faster.
Case Study – IGA Supermarket, Metro Victoria
Recently, Burgess Rawson Melbourne sold an IGA supermarket on a sharp yield of 5.4%. Given that the building was constructed in 2012 and was designed a supermarket, it featured many of the depreciable items mentioned above. Our consultants determined that the property had potential depreciation in the first year of $110,000 and up to $1,815,000 over an 11+ year period:
|Year||Division 40 Allowances $||Division 43 Allowances $||Annual Totals $|
|1 (365 days)||75,000||35,000||110,000|
Another way to look at it is this – of the property’s estimated current income of $282,500 per annum, the first $110,000 (i.e. 38% approx.) is potentially free of income tax. These potential deductions helped our client to purchase the property at a yield slightly lower than he had originally budgeted for, ultimately securing him the property at auction.
To find out how our Asset Management team can enhance your property’s return and save you money, speak to our Director of Asset Management, Ingrid Filmer on (03) 9613 0400 or email email@example.com.