These are tough times. As if last year’s bushfires weren’t enough, no-one could have predicted the fallout from eighteen months of a global pandemic. The reality is we still don’t know what the future holds, and it’s different for everyone. Both individuals and businesses are struggling with ongoing lockdowns and general uncertainty in the market place, and it’s still too soon to put an end date on it, if there is such a thing.
The only thing we know for certain is the here and now. We know our current circumstances, whether it’s being employed, working for ourselves, looking for the next opportunity or just trying to get through each day.
We know (or at least hopefully have a fair idea of) the assets on our balance sheet. The shares we own (hooray for dividend season), any property investments we might have, and our cash in the bank (if we’re lucky).
But are we really doing everything we can right now to ensure we’re maximising every dollar that we have and exploring every income opportunity?
You could declutter. Go all Marie Kondo on your unloved items and thank them for their service. You might get a few dollars on Gumtree and clear up some space for your next round of shopping but the reality is it’s not a great ongoing proposition for cashflow.
You could get a side gig and work additional hours to generate a few extra dollars. Throw the kid’s stuff out of the back seat and Uber around town on weekends. Better yet, farm out the kids to wash cars and mow lawns (ok that’s probably their money then but it might just reduce the number of times you put your hand in your pocket).
You could bury your head in the sand and hope that by Christmas the worst will be over and 2022 will be a whole new year. Let’s hope that’s the case but it won’t bring back any lost opportunities from this year.
Or you could get really smart and make the best of the assets that you already have. Make them work a bit harder for their place in your balance sheet. Make them earn their keep.
So how do you do that?
Now it might sound boring but hear me out.
If you’re lucky (or smart) enough to own an Investment Property, there’s money to be saved on your tax bill by ensuring you are claiming enough for your property depreciation.
The fact is, many people aren’t.
So what is depreciation and why does it matter?
As a property ages, its structure and the assets within it start to wear out – they depreciate.
According to the Australian Taxation Office (ATO), tax depreciation on an income-producing residential or commercial investment property is a deduction against assessable income, allowing the owner to reduce the amount of taxation payable. The deduction is based on the depreciating value of the property asset.
There are two types of depreciation – Capital Allowance and Plant & Equipment. Both are relevant but they are treated differently by the ATO and there are rules around what can be included.
The thing is, you can’t claim depreciation if you don’t know how to calculate it.
The first mistake that most people make is not ordering an investment property depreciation schedule at all.
They get all caught up in the excitement of the purchase and then the management and renting it out, and put the more technical details on the backburner.
Now given that tax depreciation is usually one of the largest deductions on the property, that’s a pretty big oversight.
It might be that they didn’t know such a deduction existed, or that it’s not relevant, or they figure they can just work it out themselves.
The trouble with this is that not only might it be non-compliant, it’s likely missing thousands in deductions!
You might be thinking, well that’s not me, my accountant looked after mine, and I’m all good thanks.
Kudos to you for at least giving it some thought.
But did you know you can also claim depreciation for a previous owner’s renovations?
Or that you might be able to claim back past years’ missed deductions?
Even if the property is older, it’s likely there have been subsequent renovations that are potentially eligible for depreciation.
That would more than cover the cost of the Investment Property Depreciation report, especially when that cost is tax deductible!
MCG Quantity Surveyors are qualified depreciation consultants, and are recognized by the ATO as one of the few professions that are qualified to estimate construction costs and dates. We can answer all of your questions and ensure that you claim the maximum allowed under the ATO rules.
Talk to one of our tax depreciation experts today. It’ll beat cleaning out the garage on the weekend.