Claiming depreciation on positively geared property can reduce your taxable income

In many cases, commercial properties are positively geared and that means their rental returns are often higher than loan repayments and outgoings for the property.

What what you may not realise is that the income received from a positively geared property can have avoidable tax implications.

Claiming depreciation on a positively geared commercial property can help you substantially reduce your overall taxable income, and further improve your after-tax cash position.

This is just one example of how claiming depreciation made a difference to one commercial property investor's after-tax cash position.

Lillian purchased a retail shop for $875,000 just over a year ago. Her property was then leased to a tenant for $1,340 per week, earning her a total rental income of $69,680 per year.

Expenses for Lillian's property including interest, rates, management fees, repairs and maintenance totalled to $62,024 per annum.

She quickly discovered she could claim $43,500 as a first year deduction

After hearing about depreciation and the deductions she could claim, Lillian enlisted BMT Tax Depreciation to prepare a tax depreciation schedule. From that depreciation schedule, she quickly discovered she could claim $43,500 as a first year deduction for her commercial property.

The tables below outline Lillian's scenario before and after she made the depreciation claim.

As you can see, Lillian was able to improve her after-tax cash position by an additional $16,095 per annum, simply by claiming depreciation. In other words, Lillian improved her overall cash position … from $93 to $402 per week.

The depreciation deductions in this case study have been calculated using the diminishing value method of depreciation; and are based on a tax rate of 37%, when looking at a positively-geared commercial property.

Bottom Line: The outcome of any depreciation claim calculation will depend on each individual's personal income, tax expenses and other claims they make. Therefore always seek advice from your Accountant on how claiming depreciation will affect your annual tax assessment.

If you're a commercial property investor wondering how depreciation could improve your cash position, why not register for a free educational webinar to find out more?

Alternatively, simply contact one of and our specialist staff at BMT Tax Depreciation — for a free over the phone assessment of your available deductions.

Bradley Beer is Managing Director with BMT Tax Depreciation.

This article originally appeared on Commerical Property Made Easy.