There are two things that are certainties when it comes to life. The first is death and the other is taxes.
We do all we can to delay the former. We exercise, we eat well and some of us may even prescribe to methods that can best be described as alternative. When it comes to the latter of life’s certainties, most of us take a more relaxed approach, incorrectly conceding that little can be done to wave off the increasingly sticky hands of the tax man.
Still, as the end of the financial year approaches, we all look for those small ways we can reduce our liabilities. We claim deductions for work related expenses, concessions for children that we may have, some even inflate their charitable giving – all to save a BIT of money. WIN!
What if there were ways we could actually make a meaningful saving as we hurriedly completed our forms prior to 30 June? Surely all income earning and tax liable Australians would be queuing to find out how?
In a recent article, we highlighted the power of negative gearing and how it has saved Australian property investors billions of dollars in tax since its inception in 1985 and $13.2 billion in 2010 – 2011 alone!
Negative gearing is but one of the facilities the Australian government has in place to encourage property investment. Another important facility is depreciation. Consider an example: Linda from Sydney has dreamt of investing in property but has hesitated in taking the plunge. After reading a recent report by the National Australia Bank (http://business.nab.com.au) that reported the emerging potential of the Queensland property market, she meets with an investment specialist at Blue Wealth and decides to purchase a one bedroom apartment in the inner Brisbane suburb of West End.
Without delving into the mechanics of depreciation, the typical West End one bed apartment will provide depreciation savings of approximately $10,000 in the first year. For someone on a 30 per cent marginal tax rate, this equates to a $3,000 saving! Depreciation as a tax minimising vehicle is most effective for NEW property – having already been exhausted for older property.
Negative gearing and depreciation work together to reduce Linda’s holding costs, making it easier for her to hold the property long term and therefore realise its growth potential. At Blue Wealth, we assess our client’s individual circumstances, providing a well researched property solution that, with the help of an accountant, reduces their tax liability.
Be sure to keep this in mind as 30 June approaches.