Consider Depreciation Deductions When Buying an Investment Property Off-The-Plan

By Bradley Beer on 26 Mar 2014
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Consider Depreciation Deductions When Buying an Investment Property Off-The-Plan

Off-the-plan properties typically attract up to $14,000 in deductions in their first year
Photo: Tax Credits

Buying off-the-plan can be a very attractive option for your first investment property, and there are some extra depreciation considerations to take into account that could help investors save thousands.

Buying off-the-plan essentially means you are entering into a contract to purchase a property prior to, or during the construction phase of a property or development.

By selecting to purchase an off-the-plan investment property, investors often find there are benefits. It can mean that you receive the end product at a cheaper price if there has been capital growth over the construction period.

The Benefits Investors Commonly Ignore

In some states, there are stamp duty savings available and investors also have the benefit of having time on their side, enabling them to save money until settlement and while the property is being completed.

“Depreciation is considered a non-cash deduction, meaning investors do not need to spend any money to be able to claim it.”

Out of all the benefits available when purchasing a property off-the-plan, the one investors most commonly fail to consider is what property depreciation benefits will become available.

The Australian Taxation Office (ATO) allows the owner of any income producing property to claim depreciation due to the wear and tear of the building structure and fixtures and fittings contained within the property.

Claiming Depreciation

Depreciation is considered a non-cash deduction, meaning investors do not need to spend any money to be able to claim it.

As with any pre-existing or built investment property, there are significant depreciation deductions available to the owner of a property purchased off-the-plan.

It is important to note however that the property must be completed and be generating an income to claim the depreciation deductions available.

Off-the-Plan Deductions

A completed property purchased off-the-plan will typically attract between $8,000 and $14,000 in deductions in the first year’s depreciation claim, so it is fair to say that the new owner can make significant savings and increase their available cash flow by claiming depreciation for the property once it is income producing.

“In some states, there are stamp duty savings available…”

As newly built properties contain new fixtures and fittings, the depreciable value of these plant and equipment items will be higher.

The owners are also eligible to claim the maximum capital works deductions for the building structure, which means more deductions are available to claim over the life of the property (40 years).

Remember to Seek Expert Advice

It is recommended that investors consult with their accountant to seek advice when purchasing a property off-the-plan and also speak with a reputable quantity surveyor to get an estimate of the likely depreciation deductions available for the property.

A specialist quantity surveyor will liaise with the property developer to request information about the property. This information is used to provide a detailed estimate of the depreciation deductions that will become available once the property has been completed and is income producing.

By obtaining this information, you as the owner will have a far more comprehensive idea of the end cost involved in holding the property.

The additional cash flow created from a depreciation claim can be put towards future loan repayments or to help save for future investment property purchases.

About the Author

Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Managing Director of BMT Tax Depreciation. A depreciation expert with over sixteen years experience in property depreciation and the construction industry, Bradley is a regular keynote speaker and presenter covering depreciation services on television, radio, at conferences and exhibitions Australia-wide. Please contact 1300 728 726 or visit www.bmtqs.com.au

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