As a property investor, one of the key ways to maximise your tax savings is through claiming deductions on the decline in value of certain assets over time, such as buildings and their fixtures, furniture, and equipment. However, navigating the complex rules and regulations around these deductions can be challenging, especially for those new to property investing.
This post will share some tips from experts on how to maximise your tax savings with tax depreciation.
Understanding Tax Depreciation
It is the process of claiming deductions on the decline in the value of certain assets over time. In Australia, the Australian Taxation Office (ATO) allows property investors to claim depreciation on the construction cost of a building, as well as the value of its fixtures and fittings. This includes everything from carpets and curtains to hot water systems and air conditioning units.
To claim depreciation, you’ll need to engage the services of a qualified quantity surveyor or registered tax agent who can prepare a depreciation schedule. This schedule will detail the assets in your property and their estimated value, as well as the rate at which they can be depreciated. By claiming depreciation, you can reduce your taxable income and increase your cash flow, which can be reinvested into your property portfolio.
Timing is Everything
The ATO has strict rules around when and how depreciation can be claimed, so it’s important to stay up-to-date with the latest regulations. For instance, as of 1 July 2017, the ATO introduced new rules around claiming depreciation on second-hand assets. Under these rules, investors can only claim depreciation on second-hand assets if they were purchased before 9 May 2017 or if the asset was brand new when it was first used or installed in the property.
Choose the Right Quantity Surveyor
Selecting a competent and knowledgeable quantity surveyor is crucial to ensure the accurate and comprehensive preparation of the depreciation schedule. The chosen quantity surveyor should possess adequate qualifications and experience and a thorough understanding of the intricacies of tax depreciation.
When choosing a quantity surveyor, look for someone who is a member of the Australian Institute of Quantity Surveyors (AIQS) or the Royal Institution of Chartered Surveyors (RICS). These professional bodies set high standards for their members and require them to adhere to strict codes of ethics and conduct.
Maximising Your Tax Savings
Maintaining accurate records of all expenses related to repairs, maintenance, renovations, or improvements made is crucial for effective property management. These records will help your quantity surveyor prepare a more accurate and comprehensive schedule.
By claiming depreciation, you can reduce your taxable income and increase your cash flow, which can be reinvested into your property portfolio. However, it’s important to remember that tax depreciation is a non-cash deduction, which means it won’t actually put money back in your pocket. Instead, it will reduce the amount of tax you need to pay.
In conclusion, understanding and maximising your tax savings through asset depreciation is an important aspect of property investing. By claiming deductions on the decline in value of certain assets over time, property investors can reduce their taxable income and increase their cash flow, which can be reinvested back into their property portfolio. To navigate the complex rules and regulations around depreciation, it is important to stay up-to-date with the latest guidelines, engage the services of a qualified professional, and keep accurate records. With the right strategies in place, property investors can make the most of their tax savings and achieve long-term success in their investments.