Clients will come in expecting a big tax return to help offset / fund the negative cash flow they have suffered month after month, only to be disappointed, until in many cases we recommend a Quantity Surveyor Report (depreciation schedule).
Once depreciation has been claimed many discover their negative cash flow will actually turn into a positive cash flow. I have on many occasions had the pleasure to show clients that what they thought was a lemon (costing them money) was in fact a positive cash flow property once depreciation was claimed.
Depreciation on an investment property as defined by the ATO is – a non-cash deduction, which may be the key to creating higher paper losses, which then convert to positive cash flows after tax.
The newer the property the higher the depreciation. New properties not only provide higher depreciation, but also provide higher rents, better tenants, and generally much less maintenance and stress.
Typical with and without claiming depreciation
|Std 4 bedroom, double garage house||Withoutdepreciation||Withdepreciation|
|Rental income (p.a. @ 5%)||$25,000||$25,000|
|Less mortgage (p.a. @ 5%)||$22,500||$22,500|
|Less property expenses (p.a. @1.5%)||$7,500||$7,500|
|Less depreciation 1st year||–||$13,800*|
|Tax loss/your tax deduction||-$5,000||-$18,800|
|Annual refund based on 34.5% tax rate||$1,725||$6,486|
|After Tax Cash flow||-$3,275||$1,486|
|Weekly refund if applying for||$33||$124|
BMT Tax Depreciation Calculator / Umbrella Accountants
Standard house construction – Medium Quality of Finish, 4 bedroom double garage, constructed and purchased in 2014, Brisbane Suburban, 200 m2, estimated cost of construction as at 1st July 2014 $248,519
Assume 90% lend of Purchase Price, Investor’s Taxable income of $75,000 pre investment Property,