Real estate investors in Queensland may be missing out on thousands of dollars in legitimate tax deductions. A significant proportion of property investors in Queensland real estate are still unaware of the expert services available to them when buying a real estate investment property, according to Paul Bennion, managing director of property depreciation specialists Deppro. Mr Bennion said Deppro was producing property depreciation reports for seasoned property investors in Queensland real estate who had just become aware of the major financial benefits these reports offered. Deppro estimates that only one in five residential real estate investors make use of the tax depreciation entitlements which are available to all investors on all investment properties. These depreciation benefits can significantly boost the cash flow of local property investors after rises in mortagge interest rates during the past year have reduced their cash flow because of higher mortgage repayments. Deloitte analysts say that despite real estate being one of the most common investments in Australia, many people are still under-claiming the large range of possible tax deductions available to property investment players. "When properties are settled, adjustments will often arise on the contract," Deloitte says. "Since contract adjustments are usually not paid by way of separate cheques but are dealt with as an adjustment to the amount paid on settlement of a property purchase they frequently escape the notice of investors. "These adjustments may be deductible to the investor. Typically, contract adjustments falling into this category include adjustments for council rates, water rates and land tax." People who own investment properties under a strata title will in most states also be the owners of the common property areas in proportion to their ownership. As a result, such property owners will be entitled to claim depreciation on components forming part of the common property. In the case of real estate under residential strata units, the depreciable components of common property commonly include items such as fire extinguishers, carpeting, lawn mowers, pool filters, elevators and security intercoms. Improving cash flow means real estate investors are in a much stronger position to absorb the impact of rising interest rates and look to buy additional investment properties. Even owners of older investment property can claim significant tax deductions through properly claiming tax depreciation benefits. Many real estate investors buying homes more than 30 years old do not get a property depreciation report because they believe buildings older than this offer no depreciation benefits. Property investors who purchase an older home only focus on the capital value of the land and rental returns. Typically, total depreciation benefits amount to $10,000 for older-style three-bedroom and one bathroom homes depending on fittings and fixtures, Deppro says. Many investors with older properties should realise that tax benefits obtained through a professional depreciation schedule can be equivalent to 60 per cent of the total purchase price of the property. "These investors can therefore make significant non-cash deductions when buying older properties," Deppro's Mr Bennion says. While there will be no depreciation benefits on the structure of an older home, there can be substantial depreciation/tax benefits on the fittings and fixtures. For example, an old carpet could still have a depreciable value of more than $1000. Anyone who employs a company to undertake a depreciation schedule should ensure that they are a member of The Australian Institute of Quantity Surveyors. There are two distinct types of depreciation benefits for property investors – depreciation on plant and special equipment and building allowance. Buildings may be written off at 2.5 per cent or 4 per cent depending on age and type. While new buildings offer full depreciation allowances, older properties still maintain substantial allowances on plant and equipment regardless of their age. Check out major financial benefits FRED and Debbie Carlsson can't wait to put in their tax returns this year. The young family from Nathan on Brisbane's south, have just employed Deppro to undertake depreciation schedules on all five of their investment properties. Debbie says the family only heard about the tax depreciation services offered by Deppro through a friend. "Even though my husband and I have bought a number of investment properties over the years, we were totally unaware of the major financial benefits that can be obtained through obtaining a depreciation schedule," she says. "We had heard of depreciation related to negative gearing of new properties, but were not aware of the significant savings we could achieve by depreciating our older 10 and 30-year-old properties also. "We have just completed a tax depreciation schedule for a new property which we have built in Jacobs Ridge and this will deliver us nearly $10,000 in tax depreciation benefits next financial year and more than $80,000 over the life of the property." Fred says they can backdate their tax depreciation for four years. "That was definitely a surprise and we can't wait to lodge our tax returns this week. The service costs between $500 and $1000 per property which will pay for itself in the first tax return." Source: Courier Mail

Jul 15, 2007