Hi gang
Just wanted to clarify a few things re: depreciation on a new property. How much would we expect returned on a building that costs say 250k to build if I earn 90 and my partner earns 40k? Then are furnishings etc calculated separately? Just curious as to how to work it out. Any info is much appreciated, mrs pMrs P
Depreciation allowance on the building has nothing to do with your income. Generally, capital allowance on building is 2.5% per annum. Furnishings are calculated separately depending on the items. Here’s a guide from the tax office which I have found to be very useful and ATO allows self-calculation per the guidelines.
Hi Mrs P, here's some real numbers based on a house that cost ~200k to build including fittings, landscaping etc, just to give you some idea.
The QS set the cost to build the house at 187200 which will be depreciated at 2.5% prime cost (ie it stays the same each year until it's used up). This will give me a deduction of 4680 pa for 40 years.
The fittings are all diminishing value, with more at the start, but it tapers off fairly rapidly after about 8 years.
Here's the first few years: 2658, 4764, 3296, 2293, 1634….
The first year was a bit lower because it wasn't for the full year.
Now you asked what it's worth to you. Your wage does play a big part in this. At 90k wage, you'll be in the 39.5% tax bracket and with a 40k wage, you'll be in the 31.5% bracket. A decade ago, anything above 50k would cop 48.5% tax, so they've certainly reduced the effectiveness of negative gearing quite a lot since then.
With 90k you're only 10k above the next tax bracket below (31.5%), so it you may be negatively geared enough to push some of your depreciation down to the bracket below. This depends on interest rates, rent etc.
Anyway, every $1 you'll be deducting while your taxable income is above 80k will give you 39.5c back in your tax refund, and similarly 31.5c back for the 40k wage.
Just for interest the house in this example is $13/week positive (in the second year) after tax at my current interest rate.The sting in the tail will be that when you sell, your cost base will be reduced by $1 for every $1 you have deducted for depreciation. You'll only have to pay tax on 50% of that though with the CGT discount, and it may be in year 2029 dollars if you've kept it 20 years.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
