Looking to maximize your tax savings on your investment property when you do your tax return this year?
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Depreciation is a crucial aspect of property investment that can often be overlooked at tax time. A quantity surveyor can help you unlock significant benefits and really evaluate potential depreciation expenses that you may have otherwise overlooked when doing your tax return. Quantity surveyors are trained in this area and costs items down to a realistic level.
What is depreciation ?
Depreciation refers to the gradual decrease in value of assets over time. When it comes to investment properties, you can claim depreciation on both capital allowances (such as fixtures and fittings) and capital works (such as the building structure). They are claimed differently in your tax returns and at different rates.
What's the difference between Capital allowances and Capital Works?
So, what's the difference between the two? Capital allowances relate to items within the property that can be easily removed or replaced, like carpets, blinds, and appliances. On the other hand, capital works refer to the construction costs of the building itself, including walls, floors, and roofing.
Claiming depreciation on the building of your investment property can lower your taxable income, ultimately reducing the amount of tax you owe. While this may seem counterintuitive at first (after all, you're increasing your profits on paper), it's actually a savvy financial move. Here's why:
When you eventually sell your property, the depreciation claimed over the years lowers your cost base, which in turn increases your capital gain. However, thanks to the 50% capital gains tax (CGT) discount for assets held longer than 12 months, you'll end up paying less tax on the increased profit.
Here's a simple example
Say you purchased an investment property for $500,000 and claimed $20,000 in depreciation on the building over the years. When you sell the property for $700,000, your capital gain is $200,000. However, since you've claimed depreciation on the building, your cost base is reduced to $480,000 ($500,000 - $20,000). With the 50% CGT discount, 💰💰💰 you'll only pay tax on $110,000 of the gain ($200,000 - $90,000), resulting in significant tax savings.
But here's the kicker: To ensure you're claiming the maximum depreciation deductions accurately, enlist the expertise of a quantity surveyor. These professionals specialize in identifying and valuing depreciable assets, helping you optimize your tax savings while staying compliant with Australian tax laws.
So, if you're looking to supercharge your tax savings on your investment property, don't overlook the power of depreciation and the value of a qualified quantity surveyor. Get in touch with us today to learn how we can help you maximize your tax benefits and boost your bottom line!
This articles intention is to inform rather than advise and is based on legislation at the time. Each Taxpayer’s circumstances vary so we strongly recommend that you discuss this information with your Tax Agent, Accountant or Bas Agent before implementation. If you take, or do not take action as a result of reading this article, we accept no responsibility for any financial loss incurred. This is general advice only.