Don’t Wait All Year to Claim Depreciation Deductions

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Tuesday, January 6th, 2015
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The end of financial year may seem a long way away for property investors, but what many investment property owners don’t realise is that they could be benefiting from the deductions they are entitled to claim right now.

Introduced in July 2000, a Pay As You Go (PAYG) withholding variation allows individuals to vary the amount of tax withheld by their employer in each pay to anticipate their tax liabilities.

By using a PAYG withholding variation, investors can take advantage of the deductions available to them regularly, rather than waiting until the end of financial year for their tax refund.

A PAYG withholding variation provides added flexibility for property investors. Having access to extra money during the year will make it easier to manage cash flow, especially when additional costs arise for unexpected repairs and maintenance. The additional cash flow received from the deductions they are entitled to can also assist property owners with extra money to help reduce loan liabilities.

To ensure a property investor maximises the deductions they can claim, it is important they speak with a specialist quantity surveyor and arrange a tax depreciation schedule immediately upon settlement of their property. A depreciation schedule will outline all of the deductions the investor can claim due to the wear and tear of a buildings structure and the depreciation of plant and equipment assets contained in their property.

The following example shows how a depreciation claim will help to further improve an investor’s fortnightly income when they nominate to use a PAYG withholding variation:

An investor owns an inner city apartment purchased for $620,000 and rented for $640 per week, or $33,280 per year. Expenses for their property, including interest, rates, property management fees, insurance, repairs and maintenance totalled $43,162.

An assessment of the property by a specialist quantity surveyor discovered the investor could claim $13,718 in depreciation for the property in the first full financial year.

depreciation table

By nominating to use a PAYG withholding variation, the investor will receive an additional $141 per fortnight in their pay by applying the PAYG withholding variation without claiming depreciation.

After the depreciation claim of $13,718 has been applied, the investor will receive $336 or an additional $195 in their fortnightly pay. Over one year, the investor can take advantage of a total of $5,076 to their cash flow.

Investors should speak with their accountant to make sure a PAYG withholding variation is suitable for their individual circumstances. They should also be aware that submitting a PAYG withholding variation will not replace their normal tax return. A tax return will need to be filed at the end of the year to calculate the actual amount of tax liability.

If suitable, your accountant can organise the PAYG withholding variation by submitting the estimated financial information to the Australian Taxation Office (ATO).

Don’t forget to ask your specialist quantity surveyor to arrange a tax depreciation schedule immediately on settlement of any investment property. When combined with PAYG, the sooner the schedule is arranged, the sooner deductions will apply which can be quite handy for investors who have only recently spent substantial funds securing ownership of the property.

A depreciation schedule will outline all current and future deductions available for an investment property. The higher the depreciation deductions are, the less tax an individual will need to have taken out of their pay when they nominate to use a PAYG variation.

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