For newer properties, the depreciation on the cost of construction, fixtures and fittings, etc. can add significantly to the expenses that can be claimed — the benefit being that they’re a ‘paper loss’ only, not a real expense that you’ve actually had to pay. The depreciation on fixtures and fittings is highest during the first 5 years. This can account for around half of the overall depreciation claimable over this time. The other half is usually attributable to the depreciation associated with the construction costs and can generally be claimed for 40 years after construction.
A depreciation schedule prepared by a Quantity Surveyor will ensure that the highest levels of depreciation possible can be claimed. You will pay roughly $600 for this service on an average residential property, but experience shows that this is worth doing, as it will usually uncover significantly higher amounts of depreciation claimable than what is typically estimated by the builder.
Once you have your depreciation schedule, you can request a ‘Personal Tax Variation’ from your Accountant. This is an estimate of how the negative gearing will affect your overall tax position. Your Accountant will submit the variation request to the ATO and, if accepted, the ATO will forward to you employer. What this means is that instead of waiting until the end of the year to receive a large tax refund, your employer will average this refund over the financial year and you will receive it in the form of a reduction in the regular amount of tax payable in your weekly or fortnightly pay run.
This improves your cash flow position, allowing you to make a larger investment than perhaps first imagined. The improved cash flow may also help to take advantage of other personal or investment opportunities.