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Claiming depreciation and using a Pay As You Go withholding variation can increase your fortnightly cash flow

Though investors often use negative gearing to offset the costs involved with owning a property, most have the aim to eventually use the property primarily as a source of income and to generate wealth.

Property investors evaluating their current financial position and considering what options they can take to improve the cash flow gained from their investment should consider a Pay as You Go withholding variation (PAYG).

PAYG Variation

The PAYG variation estimates your expected tax refund for the financial year and allows your employer to take less tax out of your wages. An accountant will usually organise the PAYG variation by submitting estimated financial information to the Australian Taxation Office (ATO). This can be done at any time during the year. For property investors, the tax liability is reduced based upon the anticipated deductions like interest, maintenance, rates, and depreciation on a rental property.

Once a request has been made, the property owner’s employer will reduce the amount of tax withheld therefore increasing their take home pay in each pay packet.

It is important to note that submitting the PAYG variation does not replace a normal tax return. A tax return still needs to be filed at the end of the year to calculate the actual amount of tax liability.

As depreciation is a non-cash deduction; nothing needs to be spent to claim it. The ATO allows investment property owners to claim property depreciation due to the wear and tear and decline in value of a building and the plant and equipment assets contained over time.

How Do You Get Started?

To support your PAYG application, a specialised Quantity Surveyor can produce a property depreciation schedule for property investors. The property depreciation schedule will outline all current and future depreciation deductions for an investment property.

By obtaining a depreciation schedule straight after purchasing an investment property, the new owner can maximise returns immediately through the PAYG withholding variation.

A PAYG withholding variation provides added flexibility for property investors. Having access to the extra money during the year will make it easier to manage cash flow especially when there can be surprise costs. This also provides an opportunity for the property owner to invest the extra money or reduce loan liabilities.

Talk to your First National property manager about how to get connected with an appropriate tax depreciation specialist. We can discuss what’s best for you and help make sure you maximise your return on investment in the way that works best for your cashflow.