oung investors are becoming better versed on the advantages of buying an investment property, including the benefits of having a tax depreciation schedule.
Paul Bennion, managing director of DEPPRO, believes younger people are twice as likely to use a professional depreciation service to claim legitimate non-cash tax deductions compared to older Australians. This is a growing trend, he says, claiming that property investors under the age of 30 account for around 20 per cent of DEPPRO's clients nationwide.
"Many of these younger investors realise that tax benefits obtained through depreciation can be equivalent to 60 per cent of the total purchase price of the property,” Bennion explains. “Many of these younger investors are also using depreciation to make significant non-cash deductions when buying newer properties."
Put simply, a tax depreciation schedule is a report that lists all the different items in a rental property, the amount of life left in them and the dollar value that can be written off over a period of time as a tax deduction against the property owner’s assessable income.
Regardless of the date of construction, all investment properties have depreciation in the form of depreciating assets, commonly known as "plant and equipment".
Plant and equipment are revalued and given a new effective life from the date of settlement. Examples of plant and equipment include carpets, ovens, cooktops, dishwashers, clothes dryers, window blinds, air conditioners, heaters and hot water systems.
"Typically, total depreciation tax benefits could amount to over $50,000 for newer properties, depending on the fittings and fixtures," Bennion says.
Case study
Tamara Przialgovskis is a 23-year-old property investor from Sydney who is well on the way to building a big property portfolio.
"During the past five years I've managed to accumulate three properties," she says. “These have included a townhouse in Waterford, Queensland which I purchased when I was 18 years of age for $66,000. I also purchased a villa in Perth with my partner Ross Treleaven during 2005 for $155,000 and have recently purchased an off-the-plan townhouse in Coomera, Queensland during 2006 for $355,000.
"I've found that the tax benefits of investment property, being the capacity to return more of my hard earned cash back into my pocket, has allowed me to easily invest the tax savings back into the purchase of my next investment property.
"I foresee this strategy enabling me to purchase one property a year for the next few years at least, and hopefully even more. This is fantastic as I’m able to do this with literally no cash savings.
"I don't know any business that works better than property. What's especially great is that you don't need to be rich to become wealthy; people of an average income can follow these concepts of creating wealth through property by utilising the tax benefits and growing equity," Tamara says.
For newcomers to the property scene, Bennion offers this warning: "Tax depreciation is complicated like other areas of finance and tax and so it’s essential that property investors get the right advice.
"First-time property investors, in particular, should ensure that they use the services of a depreciation company which is a member of The Australian Institute of Quantity Surveyors (AIQS).
"For depreciation professionals, having the appropriate training and qualifications and being a member of organisations such as the AIQS is critical in ensuring that they provide the best advice for your clients and can provide ongoing support over the longer term," he says.
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