Property cash flow is affected by both income and expenses.
Ways to improve cash flow may include:
- Reviewing rent against the market
- Refinancing or reviewing loan terms
- Reducing unnecessary expenses
- Reviewing insurance
- Improving occupancy
- Managing repairs and maintenance
- Claiming all eligible tax deductions
- Ordering a tax depreciation schedule
- Reviewing depreciation after renovations
- Considering CGT and future exit planning
Depreciation is important because it is often a non-cash deduction. The investor does not pay the depreciation amount each year in cash, but the deduction may still reduce taxable income.This can improve the after-tax position of the property.
For new properties, depreciation may be higher because new plant and equipment and capital works are often available.
For second-hand properties, there may still be capital works deductions, previous renovations, new assets and common property opportunities.
For commercial properties, depreciation can be significant because of fit-out, services and plant.
Koste.ai helps investors identify whether depreciation may be part of their cash flow improvement strategy.
Frequently Asked Questions
How does depreciation improve cash flow?
Depreciation is a non-cash deduction that reduces your taxable income without requiring you to spend money. This can reduce tax payable and improve after-tax cash flow.
Does negative gearing help cash flow?
Negative gearing means the property expenses exceed the rental income, creating a tax loss that may reduce other taxable income. This can improve overall after-tax cash flow but does not mean the property is cash flow positive.
What is a PAYG withholding variation and how does it help?
A PAYG withholding variation allows eligible investors to reduce tax withheld from their salary each pay period, based on expected rental deductions. This spreads the tax benefit throughout the year rather than waiting for a tax refund.
Can a new kitchen or renovation improve my cash flow?
Yes. Capital improvements may create additional depreciation deductions that improve after-tax cash flow, while also potentially increasing rental income or property value.
Should I claim depreciation even if my property is positively geared?
Yes. Depreciation deductions remain relevant for positively geared properties as they reduce taxable income. All eligible deductions should be reviewed regardless of cash flow position.
Written by Koste Team · Koste Chartered Quantity Surveyors · AIQS Member · RICS Member · TPB Registered · 1300 669 400 · info@koste.ai