With the RBA announcement of another interest rate rise, taking the cash rate to 0.85 percent, owners of investment properties will likely be feeling the squeeze on cash flow.
Further interest rate hikes are expected throughout the year, so any way to supplement the return on an investment is essential right now.
The simplest and most effective way to offset increasing interest costs is to start claiming Depreciation
It’s the second biggest tax deduction according to the ATO, with the average depreciation claim being over $8000 per year. If owners don’t currently have a schedule in place, this is a key part of their investment they will be missing out on.
And in the short term, if Depreciation has not been claimed previously, owners can claim up to two prior years of depreciation on an investment property for an instant refund back from the ATO.
How much could these missed deductions add up to?
Asset Reports recently delivered a Depreciation Schedule on a property purchased new in 2011, which was then owner-occupied from 2011 to 2017, before being rented as an investment property from October 2017 onwards.
Asset Reports advised that the owner could claim deductions for two prior financial years as they hadn’t claimed Depreciation in those years. The owner had submitted their tax returns in those years, but the ATO allows two years to submit an amendment to a tax return. This time starts from the day after your notice of assessment is sent to you, and you can submit more than one amendment request during the period of review.
Prior to the Schedule being ready, the owner contacted their Accountant to check and advised that they want to amend those two prior Tax Returns ASAP. As soon as the Depreciation Schedule was ready, the owner forwarded it to their Accountant who amended those Tax Returns and within 7 days they had received a refund for overpaid tax in their bank account
The Total Refund from Claiming these Missed Deductions cam to $8,989.52
2019/20: Depreciation Claimable: $14,352 x Tax Rate 33.4% = $4,793.57
2020/21: Depreciation Claimable: $12,871 x Tax Rate 32.6% = $4,195.95
On top of this the owner will claim $12,014.63 in Depreciation in 2021/22 plus the one-off cost of the Schedule of $550, and continue to claim Depreciation every year for the life of their investment - up to 40 years.
