Construction contributes approximately 8% of GDP and employs more than 1 million people. Indirectly, many more workers are engaged to provide the complementary goods and services that housing (both residential and commercial) stimulates.
In order to stimulate housing starts and the economy through the multiplier effect of construction, government INCENTIVES and CONCESSIONS are often offered on brand new property.
A depreciating asset is one that has a limited effective life and can reasonably be expected to decline in value over the time it is used.
Property investors can claim depreciation as a non- cash deduction as a cost of owning the property and renting it to a tenant. Non- cash refers to the fact that the money didn’t have to be paid out by the owner first, it is simply an allowance made by the Australian Tax Office for investors to reduce their taxable income.
There are 2 categories of depreciation allowances available to the the property investor:
CAPITAL WORKS – (the constructed building) can be claimed as ‘losing value’ at a rate of 2.5% pa for 40 years. (2.5% x 40 years =100%) This applies to both new and re sale property (under 40 years old)
FIXTURES & FITTINGS –
You can claim for assets that are new; not second-hand or used.
This includes where you purchase a newly built or substantially renovated property, for which no one was previously entitled to a deduction for the decline in value of the depreciating asset, and either:
- no one resided at the property before you acquired it, or
- the depreciating assets were installed for use, or used at this property, and you acquired the property within six months of it being newly built or substantially renovated. Following ATO guidelines on the ‘effective life’ of the asset, your accountant will normally claim depreciation of the fixtures and fittings in a new property such as carpets, window blinds, oven and hot water system etc over a period of 5-10 years. These are a significant deduction and since 1 July 2017 are only available on new properties or substantially renovated ones)
3. Brand new properties are often part of master planned estates with attention to open space and streetscapes. Consistency of housing means that it is unlikely you will end up next to an ‘eye sore’!
4. New property is normally minimal maintenance and no renovation expenses. Building carries mandatory warranty periods as do the new appliances installed in the property.
5. New property is appealing to tenants
6. New properties are built with changing demographics and trends in mind enhancing the market appeal for tenants and on re sale. For example, the trend towards open plan living making out dated the ‘formal living areas’ that don’t match changing lifestyles and preferences.
7. If the property is a house and land contract to be built stamp duty is only paid on the value of the land and not on the contract price. This offers the investor a considerable saving. There is however interest to be paid on the loan during construction. This, with the stamp duty on the land can equate to stamp duty on a completed package, so what’s the advantage?
8. Interest paid during construction is tax deductible in the year it is incurred. (Stamp duty is considered a ‘capital cost’ and not deductible until the asset is sold.) Being able to claim interest during construction normally delivers a considerable tax benefit in the first year.