Australian real estate investors are potentially costing themselves thousands of dollars at tax time thanks to do it yourself depreciation claims.
According to BMT Quantity Surveyors, figures from the Australian Taxation Office (ATO) show that during the 2012-13 financial year investors claimed an average of $3,292 in depreciation deductions.
Over the same period, BMT claims that their clients claimed an average of $9,076 in depreciation deductions, a difference of $5,784.
BMT chief executive officer Bradley Beer said investors going the DIY depreciation route likely don’t have a comprehensive understanding of what is involved.
“Because it’s a tax issue people probably think their accountant looks after it and their other people who just make some guesses. The thing we need to do is get inside the head of investors and give them a bit more education about what’s involved and how they can get the most out of it,” Beer said.
“A large percentage of investors in Australia only buy one property and something like 90% only buy a maximum of two. Investing in property is not something that’s only done by property investments experts who are buying multiple properties, those people are out there but they’re not the norm,” he said.
While investors doing their own depreciation claims may be doing the best they can, Beer said there are some common areas where they’re likely to miss out maximising their deductions.
“Probably the most regular is that people think if a property’s not new or nearly new then there isn’t any claim to make. Old property still gets depreciation, it just doesn’t get as much, but it’s still worth asking the questions,” he said.
“The other thing is that they’re not getting the maximum because they’re leaving it with the accountant or trying to make a guess and do it themselves because they’ve got some of the costs, but they’re still really unlikely to know how to how to pull the costs apart to get maximum deductions.”
It’s also likely that investors are put off from engaging the the services of a quantity surveyor due to fears of another bill to pay, but Beer said a quick look at the numbers can show whether it’s worth it or not.
“People think I’m buying a property and I’ve got all these costs, stamp duty, solicitor’s fees and everything else that goes with it and then they look at $700 for depreciation schedule and they don’t even know what that is.
“The fee is tax deductible as well, but the most important thing is making sure it’s worth doing beforehand. Before they even buy a depreciation schedule form us we say talk to us about the property and we’ll say deductions should be roughly X and then they can make the decision on whether it’s worth spending the money or not.
“A depreciation schedule is about $700, if you let someone else deal with it and then end up with $5,700 less in a claim then it’s probably not the best course of action.”
While an investor may be able to put together a sizeable deduction on their own, Beer said engaging a professional in the area can have other benefits as well.
“It’s definitely reducing the risk by getting an expert to claim the right things. We won’t put something on there that you can’t claim and we know the correct methodology to value things for the purpose of depreciation.
“If something does come up we’re the ones you’re going to come back to and we’re going to back it and talk to the ATO about what we’ve done and we’re confident we know the rules.”
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