Chen, a prudent investor, seized the opportunity to minimise his tax liabilities by leveraging depreciation claims on his industrial property investment. His strategic approach not only led to significant tax savings but also optimised his overall financial position.
Property Profile:
Chen’s investment was an industrial suite comprising an office area of 43 sqm and a warehouse area of 81 sqm. The property was built in 2013, and Chen purchased it in 2023 for $496,000.
| Property Type | Industrial Suite |
| Office Area | 43sqm |
| Warehouse Area | 81sqm |
| Build Year | 2013 |
| Purchase Price (2021) | $496,000 |
Depreciation Strategy:
In the first year of ownership, Chen claimed $9,767 in depreciation, resulting in substantial tax savings of $3,614. Over the property’s lifespan, the total depreciation claim could amount to an impressive $145,795.
| 1st Year Claim | $9,767 |
| 1st Year Tax Savings | 3,614 |
| Total Claim | $145,795 |
Financial Comparison:
To illustrate the impact of Chen’s depreciation strategy, a comparison was drawn between scenarios with and without claiming depreciation.
| With Depreciation Claim | Without Claim | |
|---|---|---|
| Rent received at $480 per week | $24,960 | $24,960 |
| Interest (6% of 80% borrowing of $496K purchase price) | -$23,808 | -$23,808 |
| Other expenses (property management, rates, etc.) | -$7,440 | -$7,440 |
| Cash outlay before depreciation (a) | -$6,288 | -$6,288 |
| Depreciation Year 1 | -$9,767 | $0 |
| Total tax loss | -$16,055 | -$6,288 |
| Tax Refund @ 37% (b) | $5,940 | $2,327 |
| Annual profit/loss to own property = (a + b) | -$348 | -$3,961 |
| Weekly profit/loss to own property | -$7 | -$76 |
Conclusion:
Chen’s investment success underscores the importance of strategic tax planning in property investments. By capitalising on depreciation claims for his industrial property, Chen significantly reduced his tax liabilities and improved his overall financial position.