Many landlords throughout Australia are now under growing financial pressure because tenants are losing their jobs in the thousands and struggling to pay rent due to the economic impact of the Coronavirus.
At the same time landlords, themselves are being directly impacted by many owning small businesses that have been closed by the virus while other landlords who are employed have also lost their jobs.
This rising financial pressure on landlords has further intensified with the government announcing that tenants cannot be evicted from rental properties for the next six months at least.
Many landlords are so desperate now that more than 10,000 of them have asked Australia's largest lender to freeze their mortgage repayments in response to a ban on evicting tenants who fall behind on rent.
The Commonwealth Bank has said 43,000 mortgage customers had opted to defer payments so far and a quarter of these requests were for investor loans.
It is fair to say that the Australian economy will soon enter a recession because of the impact of the coronavirus, and this will make things even worse for landlords.
While falling interest rates may give some relief to property investors, the outlook for the property market in many capital cities is becoming more challenging and as a result investors need to utilise every tax benefit they are entitled to so they are put under any undue financial stress.
For example, it is still a fact that a large proportion of Australian property investors fail to claim their full tax depreciation benefits that can equate to 60% of the purchase price of a property.
In dollar terms, if you bought a new apartment for investment purposes that cost $500,000, these total tax depreciation benefits could amount to a massive $300,000.
The typical cost of a tax depreciation report is around $600 which is also tax-deductible making it a great investment for astute property investors.
Tax depreciation on a residential property is a deduction against assessable income allowing the owner to reduce the amount of taxation payable.
An investor is able to claim for two distinct types of depreciation on buildings. The first is Capital Allowance which is a deduction based on the historical construction costs of the property and may include surveying, engineering, architectural and building fees. The second is Plant and Equipment which includes items such as floor coverings, window treatments and fixed equipment i.e. cookers.
Most investors do not realize that tax benefits obtained through depreciation can be equivalent to 60% of the total purchase price of the property.
You should engage the services of a tax deprecation company that will undertake an inspection of your property and provide you with an ATO compliant tax depreciation report which you can provide to your accountant. This report is a 'once-off' and will outline the number of tax benefits you can claim on an annual basis. Anyone considering employing a tax depreciation company should ensure that they are a member of the Australian Institute of Quantity Surveyors (AIQS).
DEPPRO estimates that only one in five residential investors make use of the tax depreciation entitlements which are available to all investors on all investment properties.
Many property investors who have owned their properties for several years and have not undertaken a tax depreciation schedule still have the potential to claim back thousands of dollars in tax depreciation benefits.
A depreciation schedule can be undertaken at any time by a property investor. If you own a property for several years, you can still undertake a depreciation schedule and put in an adjusted tax return to enable them to obtain unclaimed tax depreciation benefits.