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10 Aug 2016

Houses or units; what does it mean for depreciation deductions?

When property investors are selecting an investment property, they are often faced with one crucial decision; whether to invest in a house or a unit.

While considering their options, investors frequently approach BMT Tax Depreciation to ask how the depreciation deductions differ between each of these different types of property investments.

The answer depends on a variety of factors. The purchase price, construction commencement date, settlement date, land value (where relevant) and the value of all fixtures and fittings within the property are all important determinants of the final depreciation claim. However, generally a depreciation claim for a unit will contain greater deductions than a claim for a house.

Units often contain more fixtures and fittings than a house. This allows the owner to claim against a greater number of depreciable items in the unit for example carpets, light fittings and dishwashers. Additionally, owners of units may be able to claim depreciation deductions for common property, which are the assets shared by all property owners in the development. Examples of common property include pools, driveways, stairways and elevators. The deductions claimable for such assets are determined by the individual’s ownership share, which is allocated by an Accountant. The example below demonstrates the difference in depreciation claimable between a house and a unit. After five years of ownership, depreciation deductions for the unit totalled $17,500 more than was claimable for the house. Both properties have the same purchase price, construction date and settlement date.

Note: When purchasing a strata unit there are other costs, such as strata fees, to consider as an ongoing cost of ownership.

How should this affect your purchasing decisions?

Depreciation deductions can have a significant effect on a property investor’s cash flow. The $17,500 in additional deductions available to a unit property investor in this example scenario would receive an additional $25 per week in additional cash flow (assuming a 37 per cent marginal tax rate).

While the additional cash flow offered by depreciation should always be a significant factor affecting a purchase, multiple factors will need to be considered when making an investment decision. A property investor’s personal circumstances and investment strategy should always be taken into account.

Regardless of the property type, property investors should always contact a qualified Quantity Surveyor specialising in tax depreciation, such as BMT Tax Depreciation, to assess the depreciation deductions available for an investment property. A BMT Tax Depreciation Schedule maximises the deductions that can be claimed for depreciation over the life of a property. By claiming their full depreciation deductions, property investors can greatly improve the cash flow of any investment property, regardless of whether it is a house or unit.

Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit 
www.bmtqs.com.au for an Australia-wide service.


 

 

 

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