Property Depreciation Schedules - The New reality

Property Tips

The following article appears in “The Bulletin” on

Safety net

The eight top tips for property investor safety.

  1. Maximise rentals

    With capital growth off the radar for a while, it’s time to concentrate on maximising rental returns, the other element that contributes to the overall yield received from property investment. “When capital growth is slow or non-existent, investors need to turn to rental yields and perhaps spend some money upgrading so they can achieve higher rentals,” Bing says.

    First thing is to make sure the property is rented. It’s no good setting a rental for a property that the market will not pay, Yardney says. Because of the spread of real estate on the internet, most tenants now know exactly what similar properties cost in rent and they will not pay more than the market. A vacant property brings in nothing and costs money to advertise.

    If a property is vacant, take the opportunity to upgrade, says Yardney. This will extend its appeal. “A split-system air-conditioner costs about $2000, is depreciable and probably means you can raise the rent a little. Same with a dishwasher. Neat, clean and tidy also widens the appeal. Make sure you repaint regularly, carry out the necessary repairs and keep outdoor areas looking good.”

    Landlords can also increase the market if they allow pets, Yardney says. “We estimate that about two-thirds of Australians are pet-owners,” he says. “It’s worth landlords considering a sensible pet policy, which would allow pets in a rental property as long as all damage is repaired at the end of the lease period.”

    If good tenants are in place, it may be worth trading off higher rent for a longer lease, says Matusik.

  2. Claim all deductions

    “Let the taxman pay for your investment property” has been the catch-cry of many marketers of off-the-plan apartments. Without the benefits of negative gearing, many of those who bought near the top of the market would be unable to hold on.

    “Tax benefits should be the icing on the cake, but it’s foolish not to maximise what you are legally entitled to,” says Wakelin. Most investors know they can claim the interest paid on mortgage loans tied to investment property. But many are unsure about what else they can claim. The Australian Taxation Office website outlines what can and cannot claimed as a landlord. And if there is still any confusion, consult an accountant specialising in property investments.

  3. Know the perks

    If an investment property is some distance from where the owner lives, expenses incurred to carry out regular inspections can be claimed. While this does not mean claiming a monthly visit to a Gold Coast investment unit, it does mean including some of the costs, including airfares, for an annual visit to check it out.

    Of course, if the visit is also a holiday, all of the costs cannot be claimed. If you fly to inspect your rental property, stay overnight, and return home on the following day, all of the airfare and accommodation expenses would generally be allowed as a deduction, says the ATO.

    But where travel related to rental property is combined with a holiday or other private activities, expenses will need to be apportioned.

  4. Depreciate

    Most investors realise that new properties benefit from depreciation, but some do not know that older properties can also yield good tax breaks. “In this market where property prices have at best flattened, investors need to ensure they are claiming every deduction available to them,” says Tyron Hyde, a director of Washington Brown Depreciation. “A professionally prepared depreciation schedule can make all the difference.

    “Take a brand-new two-bedroom apartment. The first-year claim could be between $8000 and $12,000. And the first five years could amount to up to $40,000. Even on a 50-year-old building bought for around $150,000 we still manage to claim $1500 to $3000 in the first year. I recently completed a schedule for an old house bought for $220,000 and got a first-year deduction of $6000. It was unusual in that it had eight air-conditioning units and 25 fans. But it highlights that a report should be sought for all properties.”

  5. Go for a weekly tax break

    If you are a PAYG wage earner, the smartest way to claim negative-gearing entitlements is weekly rather than waiting until the end of each tax year. It works like this:

    Apply to the ATO to have the tax deductions on your salary varied to take account of losses on investments. To do this, lodge a PAYG income tax withholding application. Make sure you use the correct version of the form, which is updated each financial year. It can be lodged either as a hard copy or electronically over the web.

    What’s the gain? The ATO website uses the example of John, a real-estate salesman who earns $45,000 a year from his job (obviously his earnings have been affected by the house price slump). John also estimates he has a $15,000-a-year shortfall from his investment property. Normally, he would be taxed on $45,000, but he could apply to have his tax varied so he is only taxed on an annual income of $30,000.

    Using the 2004-05 personal tax scales, the amount of tax withheld weekly from John’s pay packet would fall from $186 to $99 and his take-home pay would increase from $679 to $766.

  6. Find a better mortgage

    “Now is a good time to review your loan structure,” says Wakelin. “What is now available that wasn’t when you took out your loan? Consider refinancing and maybe freeing up some equity to buy another property.”

    The contracting home-loan market may see lenders more prepared to do deals to retain their customers and attract new ones, says Andrew Willink, managing director of Cannex.

  7. Review your property manager

    Management fees are generally about 6%-9% of the gross rental, so if things are tight owners could take over the property management themselves. But this will take time if it’s to be done properly. Good management, particularly making sure all minor repairs are taken care of speedily, is vital to retain contented tenants, says Wakelin. “An efficient property manager should inspect your property at least every six months. They should report to you regularly on the progress of the tenancy, rental arrears, repairs and maintenance. It’s important they make recommendations before the end of a tenancy about the rental outlook and best lease terms for your property.”

  8. Get adequate insurance

    Ask whether savings can be made by combining all insurances with the one company. Should you also have landlord insurance?

    Good landlord insurance not only covers the property asset, it also covers malicious and accidental damage by tenants, legal liability and loss of rental income. If an investment is a flat, consider whether the body corporate has adequate insurance for the common areas, says Wakelin.