Depreciation on Positively Geared Commercial Properties

Thursday, June 19th, 2014
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Commercial properties are generally positively geared. Their rental returns are often higher than loan repayments and outgoings for the property.

What many investors don’t realise is that the income received from a positively geared property can have tax implications.

Claiming depreciation on a positively geared commercial property can assist an owner to substantially reduce their overall taxable income, and further improve their after-tax cash position.

The following case study provides an example:

Tara purchased a retail shop for $920,000 just over a year ago. Her property was then leased to a tenant for $1,450 per week, earning her a total rental income of $75,400 per year. Expenses for Tara’s property including interest, rates, management fees, repairs and maintenance totalled $67,562.

After hearing about depreciation and the deductions she could claim, Tara enlisted a specialist Quantity Surveyor to prepare a tax depreciation schedule. From the tax depreciation schedule, she found out she would be able to claim $45,200 as a first year deduction for her commercial property.

With & Without claim - separate tables

Simply by claiming depreciation, Tara was able to improve her after tax cash position by an additional $16,724, or from $95 to $417 per week.

It is recommended for all commercial property investors to consult with a specialist Quantity Surveyor to prepare a tax depreciation schedule for their property. A Quantity Surveyor will perform a site inspection to ensure the owner’s depreciation claim is maximised and the details of the claims for all depreciable assets and structures will be itemised to enable the owner’s Accountant to easily process their claim when they complete their income tax assessment.

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