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Ask an expert: What is depreciation, and how can it benefit me?

I’ve learnt a lot in my career. Coming from a property background, I started out in a project marketing group, and have spent the last 4 years as a tax depreciation specialist and keynote speaker for one of the largest Quantity Surveying firms in Australia.

Thanks to the ever-changing nature of the finance industry, however, it seems there is always much to learn. I know-first hand that it can be difficult to keep up with all the concepts and inner-workings of the property investment world.

Something property investors often don’t know about is what’s called ‘depreciation.’ This is the tax deduction available to investors when the value of an asset - an investment property in this case - declines over time due to wear and tear.

You can claim depreciation on anything from the building structure (depending on when it was first built), to carpets, to blinds, right down to the light fittings and smoke alarms. How much you can claim will depend upon a number of things, including the building type (residential, commercial or industrial), the age of the property and its features.

Technically, depreciation constitutes a loss of potential income, so by claiming depreciation you will pay less tax, therefore increasing the cash flow from your investment property.

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As boring as it sounds, I am quite passionate about the subject (who wants to be throwing money away?!). I see so many property investors missing out on thousands of dollars every year because they either were unaware, or didn’t know how to take advantage, of this tax deduction. In fact, statistics from the Australian Taxation Office (ATO) show that around 80% of investors don’t claim depreciation.

Savvy investors are generally aware of the benefits, and your accountant should ensure you have a report. However, it’s not a widely known or advertised benefit. If you’re just hearing about it now, the good news for investors who’ve missed out on depreciation in past years is that the ATO allows you to amend your previous two financial years’ claims.

It is vital to have a depreciation schedule produced so that you can claim exactly what you’re entitled to on your tax return. I suggest seeking the advice of an accountant, who should refer you to a specialist Quantity Surveyor, rather than choosing to DIY your depreciation claims.

A Quantity Surveyor will be able to ensure you get the most money back. Recent data released by the ATO shows that Australian property investors claimed an average of $3,292 in depreciation deductions in the income year. On the other hand, investors who engaged a quantity surveying firm to produce a depreciation schedule had a much higher average claim of around $9,000.

Might I add, a tax depreciation schedule is a tedious, complicated report, and if you forget things or miscalculate, you could find yourself out of pocket, and potentially in trouble for tax evasion. With a Quantity Surveyor, you’re safe if the ATO ever audits you, and you’ll be claiming on items you never thought possible. In other words - leave it to the pros!

Looking for more expert advice? Have a look at these 5 expert steps towards buying a house.

About the author: Alannah Browne is a resident Home Loan Specialist here at Lendi and has worked in the property industry for the majority of her professional life. Being passionate about health and wealth, her interests include cooking, fitness and business.

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Tags: property, depreciation, investing

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