As a property investor, one of your priorities should always be the performance of your property and maximising your return on investment. Come tax time, there are some serious benefits that you may be able to take advantage of because of your investment property.
If you take the right action, the financial benefit to you can go a long way towards putting some extra money in your pockets.
Depreciation of the worth of your investment property is natural. Over time, due to normal wear and tear, the physical structure itself will lower in value and this is an unavoidable part of property investment.
But you can take advantage of this at tax time by claiming the depreciation. It is also a fantastic move for the savvy investor as it is a non-cash deduction – meaning that you don’t need to spend money to claim it.
However, it’s important to note that the depreciation is only applied to the physical structure of your property and not the land itself.
There are capital works deductions that can be made on the physical structure of the building and to things that are considered to be permanently fixed to it. Examples of these are driveways, fences and doors.
You may also be able to claim the depreciation of plant and equipment assets. These are items that are easily removable from the property such as blinds and air-conditioning units.
Capital works expenses you incur form part of the cost base of your property for capital gains tax purposes. If you claim a capital works deduction, you will need to take this into account when you work out your capital gain or loss.
If it is not possible to determine the actual construction costs, the Australian Taxation Office suggests that you can obtain an estimate from a quantity surveyor or other independent qualified person.
Professionally trained and accredited, a quantity surveyor specialises in building measurement and estimating the value of construction costs. They apply their expertise during the different stages of construction to determine the cost of building works on any residential or commercial property.
While better known duties of a quantity surveyor include cost consulting and estimating, they can also perform risk management and calculation as well as give expert contractual advice. It is because of this expertise that it is vital to hire a quantity surveyor so as to gain an accurate, well assessed report on the levels of depreciation on your property.
It is also vital that you keep track of all the spending you have done. By keeping extensive records, you will be able to declare all your property-related expenditure in your tax return.
If you are a property investor, and you would like to learn more about maximising your return on investment, the Little Real Estate team may be able to help you.
Similarly, if you are thinking of conducting any maintenance work on your property before the end of the financial year, give Little Property Maintenance a call on 1300 LITTLE.
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