Melbourne | Sydney | Perth | Canberra | Brisbane | Darwin | Tasmania | Adelaide

A Crucial Element in Your Negative Gearing Strategy

April 2, 2024
A Crucial Element in Your Negative Gearing Strategy

In the realm of property investment, negative gearing stands as a popular strategy renowned for its potential tax advantages. However, amidst this tactic, one pertinent question arises: What role does depreciation play, and does it remain relevant? Let’s delve into the intricacies.

Understanding Negative Gearing

For those unacquainted with the concept, negative gearing permits investors who have incurred a loss on an investment property to offset that loss against their personal income for the respective year. This maneuver effectively reduces the individual or entity’s taxable income, consequently diminishing their tax liability. The outcome? A potentially augmented tax refund or a mitigated tax bill, contingent upon the circumstances.

Depreciation’s Interplay with Negative Gearing

Capital allowances and depreciation are valid tax deductions for investors, accounting for property wear and tear. Notably, depreciation ranks among the foremost tax deductions claimed by rental property owners. This mechanism allows for the recognition of the depreciation in the value of the building and assets annually, thus serving as a tax deduction.

Diminishing Tax Liability through Depreciation for Positively Geared Properties

In the scenario of a positively geared property, leveraging depreciation aids in curbing the annual profit derived from the investment, thereby resulting in a reduced tax burden. The ability to claim depreciation remains intact irrespective of alterations to negative gearing laws, enabling these investors to trim their tax liability effectively.

Enhancing Tax Position with Depreciation for Negatively Geared Properties

Conversely, for properties operating under negative gearing, depreciation serves to exacerbate the incurred loss, heightening the deductible amount against personal income. Consequently, this further diminishes the investor’s tax obligation or amplifies the potential tax refund.

The Role of Depreciation in Cash Flow and Tax Payable

llustrative tables elucidate the impact of claiming depreciation on the cash flow and tax payable for investors, underscoring its significance irrespective of the property’s financial standing.

Harnessing Depreciation Benefits

Whether your investment property yields profit or incurs a loss annually, the advantages of claiming depreciation persist. To optimize depreciation deductions, enlist the expertise of a specialist quantity surveyor, duly registered as a tax agent.

It’s crucial to discern that not all quantity surveyors specialize in depreciation. Therefore, emphasizing the necessity, engage a registered tax agent recognized by the Tax Practitioners Board for preparing depreciation schedules.

Partnering with Tax Schedule Tax Depreciation

For property owners seeking to maximize their depreciation deductions, Tax Schedule Tax Depreciation offers tailored solutions. Reach out today to estimate your entitled deductions or avail a complimentary review of your existing depreciation schedule.

Contact Details:
Phone: +61 485 931 167