Know Your Depreciation BEFORE You Purchase


BEFORE YOU PURCHASE a Commercial investment property, make sure you crunch the numbers. If you appropriately claim property depreciation, you can significantly increase the return on your investment.

What Deductions Can You Make?

More often than not, investors fail to realise the financial benefit of claiming depreciation prior to making their purchase.

You should consider the potential return of the property, surrounding commercial infrastructure along with rental vacancy rates in the immediate area.

You may also like to factor in the current tenancy contract in place with historical growth.

You can also calculate the tax deductible costs and other deductions involved in owning the property, such as:

  • Rates, interest
  • Repairs
  • Maintenance
  • Fit-out costs
  • Property depreciation
  • Property management fees (when required)

These deductions add to your net cash return; and every deductible dollar comes back to the you at your marginal tax rate.

How To Maximise Your Return

The following example shows how one Commercial property investor identified an additional annual cash flow of $16,692 … just by claiming property depreciation.

The property investor was considering purchasing a Commercial office building for $930,000.

They did some preliminary research and asked a Property Manager for a rental appraisal of the property. This resulted in an expected rental income of $950 per week, or $49,400 per year.

The investor was also able to work out an estimate of the costs involved in owning the property. Expenses including interest rates, property management fees, rates, repairs and maintenance costs came to a total of $60,450 per annum.

They contacted BMT Tax Depreciation for a free assessment of the likely deductions they could expect from the property. And found out they were able to claim approximately $45,080 depreciation, during the first full year.

The following table provides a summary of these costs and the investor’s annual position, depending on whether or not depreciation is claimed.

With:withoutDepreciationWithout claiming depreciation, the property investor would experience a loss of $134 per week during the first year of owning the property.

By claiming depreciation, the property owner will now receive a return of $187 per week, or $9,724 in the first year of ownership.

BOTTOM LINE: Crunch the numbers before you purchase and you will have a better perspective on the affordability of the property and your future cash flow position.

After you buy, contact a specialist Quantity Surveyor to prepare a property depreciation schedule — to ensure depreciation deductions are accurate and maximised.

BMT Tax Depreciation offer a number of ways for investors to obtain an estimate of the depreciation deductions that will be available for any investment property they are considering purchasing.

Their Tax Depreciation Calculator is available online or as a mobile app for iPhone or Android. Investors need to know only a few details about a prospective property in order to calculate a quick estimate. To use the calculator online, investors can click here.

Alternatively, investors can contact BMT Tax Depreciation for a free estimate of potential deductions.


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