Case Study

A Brand New Townhouse Purchased for $720,000

By ordering a tax depreciation schedule from our team, and claiming depreciation on her brand-new townhouse property, Vivian significantly reduced what her negative cash flow position would have been in the second year of owning the property.

Brand-new properties generally offer significant tax deductions, especially if they are rented out immediately. Although Vivian only rented it out six months after first buying it, and she is only claiming depreciation in her second year of owning the property, she still ended up saving $3,330.

Here's how.

The Numbers: Vivian’s Investment Property

Here are some figures regarding Vivian’s investment property:

Purchase Type

She purchased a brand-new townhouse for $720,000 two years ago and rented it out six months after purchasing the property.

Rent

Her yearly rental amounted to $28,080 per year – which is a weekly rental of $540.

Expenses

The property’s expenses amounted to $38,522, covering her interest repayments, management fees, rates and maintenance.

While Vivian purchased a brand-new townhouse, she can’t claim deductions for the depreciation on the property’s plant and equipment (Division 40 assets) because she lived in the property for the first six months. According to the ATO, if the property was purchased after 2017, owners can’t claim depreciation for existing plant and equipment assets.

However, Vivian can claim deductions for the property’s capital works (Division 43) deductions.

Without Depreciation vs With Depreciation Services

The following cost breakdown shows Vivian’s cash position with and without depreciation in her second year of owning the property.

According to her Duo Tax depreciation schedule, Vivian could claim $9,000 depreciation in her first year.

A brand house purchased for $690,000

Vivian’s numbers without a depreciation claim

Annual Income

($540 x 52 weeks)

$28,080

Annual Expenses

$38,522

Pre-tax: Net Income

Income minus expenses: $28,080 - $38,522)

-$10,442

Total Taxation Loss

-$10,442

Tax Refund

(tax loss x 37% tax rate)

$3,864

Annual Costs of the Investment Property

[net income + tax refund: (-$10,442) + $3,864]

-$6,578

Weekly loss

-$127

Vivian’s numbers with a depreciation claim of $9,000

Annual Income

($540 x 52 weeks)

$28,080

Annual Expenses

$38,522

Pre-tax: Net Income

Income minus expenses: $28,080 - $38,522)

-$10,442

Total Taxation Loss

[net income + depreciation: (-$10,442) + ($9,000)]

-$19,422

Tax Refund

(tax loss x 37% tax rate)

$7,194

Annual Costs of the Investment Property

Total taxation loss [net income + depreciation: (-$10,442) + ($7,194)]

-$3,248

Weekly loss

-$62

Difference of $64 per week/ $3,330 per year

Without depreciation, Vivian would’ve had to have paid $127 out of her own pocket each week. However, by taking advantage of the Australian Tax Office’s tax breaks and making a depreciation claim, Vivian reduced that amount to only $62.

This means that Duo Tax was able to save Vivian a total of $3,330 in her first year of owning the investment property.

The great thing about her depreciation schedule is that it’s valid for up to 40 years! So, Vivian can continue saving money each year, as long as she continues to own the property.

Here’s How Much You Could Be Claiming

As you can see from Vivian’s scenario, tax depreciation schedules can make a significant difference in an investor’s cash flow each year.

However, if you’re still feeling unsure about committing to ordering a depreciation schedule, we have designed a tax depreciation calculator to help you estimate what you could potentially claim on tax depreciation.

This is an accounting tool designed to help estimate and calculate the declining value of capital works and plant and equipment assets and relies on accurate figures to present accurate estimations.

Our Duo Tax Rental Property Depreciation Calculator is free, so make sure to check it out!