Tax time is here and whilst the mere mention of the word can evoke dread, or even a yawn from anyone who is not an accountant, for many Australians the end of the financial year opens a window of opportunity.
So just what is the relationship between tax time and property?
Observations of consumer sentiment and home loan affordability suggests that tax time need not be a time to fear; when it comes to the Australian property market it may provide some golden opportunities.
It is reasonable to think that the momentary increase in disposable income during tax return time induces a feeling of increased financial security and confidence. This feeling can influence people’s tendency and willingness to spend. Following this line of argument, a healthy tax return could make an entry into the property market seem more manageable, boosting the funds available for a house deposit and creating a sense of affordability. It is no coincidence that for the past three years (2010-2013) there has been an average improvement of 4.0 points on the Consumer Sentiment Index during the tax return period.
Furthermore, tax time is music to the ears of investment property owners. If you are an investment property owner you are able to claim property depreciation as a deduction, regardless of whether it is new, old, or refurbished. Approximately 2.5 per cent of the construction cost, depending on age and type, can be claimed under building allowance. In addition, property investors can tax depreciate plant and equipment, based on their effective life cycle and the related depreciation rate. This is available to any item and there are no age restrictions. Not only that, scrapping - the act of disposing and replacing assets within the investment property - can also be tax depreciated.
In my experience, it is surprising how many investors don’t claim depreciation on rental properties. The opportunity to claim many thousands of dollars could be lost. If depreciation hasn’t been claimed in the past, the investor should talk to their accountant about submitting an amended tax return claiming for previous years’ depreciation.
As real estate agents, being informed about tax depreciation on investment property has many benefits, not least being it shapes a win-win for both the property manager and the owner. Trust is built, and a flow-on effect from this is the increased probability of managing existing properties and obtaining new ones through referrals. For an investor, tax time provides a sense of ‘assistance’ from the government in their journey to wealth creation.
For real estate agents, tax time is the period where statistically both purchasing affordability and demand for dwellings is likely to increase. Statistics don’t lie, PRDnationwide research has shown the Home Loan Affordability Index has seen an increase of 0.5 index points during the tax period. So don’t sit on your hands, get active around tax time and capitalise on the increased interest in your marketplace.