When considering taking the plunge on an investment property, a vacant block of land probably isn’t the first option considered. We want to change this as people are unaware of the benefits of building on an empty block. Your specifications can be achieved, along with long-term financial benefits that can alleviate tax and boost cash flow.
You can claim all improvements and new assets on the property
Depreciation is the gradual wear and tear of a building and its fixtures over time. You can claim depreciation on the capital works/improvements on (most) fixtures and fittings of an investment property.
One upside of building an investment property is that the new assets can be depreciated to the largest extent possible. Different fixtures have different effective lives, which enable them to be depreciated quicker/slower than others.
The effective life of assets will boost your cash flow sooner
Building an investment property allows you to choose everything from the paint colour to the tiles in the bathroom. With this, careful consideration of the plant and equipment is required due to the effective lives of assets. Effective lives are mandated by the ATO and can be found here. A shorter effective life results in a higher rate of depreciation. For example, new carpet has an effective life of 8 years and a diminishing value rate of depreciation rate of 25 per cent. Whereas floating timber floors have an effective life of 15 years, ultimately meaning that the tax benefit can only be obtained in almost double the time in comparison to carpet.
Low-value pool and immediate asset write-off
There are incentives in place that enable higher depreciation deductions for plant and equipment. It is imperative that this is considered when choosing assets for your investment property.
The low-value pool is a method of recognising assets in a “pool” that allows assets valued at $1,000 or less to be depreciated quicker.
The immediate deduction is also available for (most) plant and equipment costing less than $300. This means that they can be instantly written off, and the maximum tax benefit can be obtained the year they were purchased.
What happens if you lived in the property prior to leasing it out?
There are certain tax implications when living in a property prior to renting it out. Living in the property prior to renting it out may affect capital gains tax down the line, but will also lead to reductions in the depreciation amounts claimable. It will also affect the percentage claimable of other expenses such as insurance or interest repayments for that financial year.
Get a tax depreciation schedule completed sooner rather than later
In order to determine what can be depreciated, a depreciation schedule is required. Get this when construction is done and prior to renting out your property.
To learn more about depreciation get in touch with Link Advisors so we can determine whether you are eligible to save money on tax through depreciation.