Tax Tip – Maximise Construction Costs

For property investors, one of the biggest positives to come out of the market downturn is increased tax benefits. All around Australia reduced housing prices means it is now possible to snap up properties for prices close to their original construction cost.

Why’s this important? Original construction costs must be used when depreciating property. The closer you can buy to the original construction cost, the bigger the tax advantages and the likelihood the property could be cash-flow positive.

Here’s an example:
A client of ours recently bought a two-bedroom, two-year-old apartment in Sydney’s Western Suburbs for $275,000. The construction cost for this project was $200,000. The purchase price brand new was $350,000.

The original construction cost (200K) is used as the basis for the new investor, not the original sale price. Therefore, depreciation relative to the purchase price has increased. This property would be cash-flow positive, at worse cash flow neutral.

So the tip would be to find property that maybe between 2-5 years old, that has come back in price compared to when it was originally sold.

Where to look?
We’ve talked to our in-house property experts and here are some of their top recommended suburbs to start your property search!

NSW
Parramatta, Castle Hill
Alexandria, Burwood
Sydney CBD

QLD
Brisbane City
Newstead /New Farm
Mooloolabah
Surfers Paradise

VIC
South Melbourne

Next steps

Before you buy, use our exclusive tax depreciation calculator to see how much depreciation you can claim.

Remember - The construction cost is ONLY one variable in the property investment equation - you need to analyse many factors before deciding what is right for you.

Click here to learn about our other tax tips!