Hi everyone,
Could someone please give me a practical example of how depreciation affects cash flows, and also when you are eligable for depreciation, like i heard it was only on houses built after 1985?
Thankyou
Fudge111
Hey Fudge
Depreciation helps your cash flow – but only if you pay tax!!
For example, let’s assume that your property is cost neutral, ie. rent = all interest, rates etc.
BUT, your house was built after 1985 (when CGT was brought in, they also brought in the depreciation on building allowance).
You had a quantity surveyor who said that your building could be depreciated at $2000 per year (2.5% of building cost = $80000 is what he/she said it cost to build). You also have carpets, blinds etc. that in year one can be depreciated at $2000. Total allowance is $4000.
This figure is then deducted from taxable income. Say your income is $50K, and you pay $11K in tax.
Your new taxable income is now $46K ($50K – depreciation), and therefore your new tax is $9800. You get a refund of approx $1200.
this also is how some negative geared properties can be positive cashflow.
Cheers
Mel
You must be logged in to reply to this topic. If you don't have an account, you can register here.
