65% of all IP's are older than 40 years ?

[TurkeyBaster]

I recently had cause to browse through the Australian Taxation Offices latest statistics whilst researching for an article. You can find the Taxation Statistics 2006-2007 here:

http://www.ato.gov.au/content/downloads/00177078_2007PER5B.pdf

On page 21 of this document, you can see that the total number of taxpayers who claimed rental deductions was around 1.6 million, of which, it should be noted, approximately 72% used a tax agent or accountant.

However, the number that I found surprising was that only 560 thousand, around 35%, claimed any Capital works deductions.

My question is: Does this mean that 65% of all IP's are now older than 40 years (unlikely, I'd have thought) or that investors/agents are unaware that they can claim these deductions (also seems unlikely).

 

[deejay]

I find it very easy to believe that 65% of rental properties are that old. Ours are 85, 89, 83, and 118 years old. In many regional areas those are normal ages. 1920s bungalows are particularly solid and have large rooms, so there's no reason to knock them down. Frankly, it's unlikely you'll get the same structural quality new.

That said, I'd stay away from Victorian cottages 1850-1890. We do own one, but it was one of the best ones of its time. Generally there is a huge difference in quality between 1890 and 1920. If you're buying old buildings, it's very important to use a building inspector who knows old buildings and knows what quirks and features were common at the time.

 

[jrc]

Basically for residential property building writeoffs weren't available until about the mid 80's.

 

[Peter Parker]

I recently had cause to browse through the Australian Taxation Offices latest statistics whilst researching for an article. You can find the Taxation Statistics 2006-2007 here:

http://www.ato.gov.au/content/downloads/00177078_2007PER5B.pdf

On page 21 of this document, you can see that the total number of taxpayers who claimed rental deductions was around 1.6 million, of which, it should be noted, approximately 72% used a tax agent or accountant.

My question is: Does this mean that 65% of all IP's are now older than 40 years (unlikely, I'd have thought) or that investors/agents are unaware that they can claim these deductions (also seems unlikely).

TB, I don't believe the latter follows from the former.

Various deductions (eg interest, property management, repairs, rates and depreciation of items like air conditioners) can be claimed by the IP investor, regardless of property age.

If you're thinking of building depreciation, this is only relates to buildings built after 1985, ie 24 years old or younger.

It may be that 65% of IPs are older than 24 years. Or it could mean that there's some landlords with younger buildings and they haven't bothered with claiming depreciation.

 

[alwayscurious]

Hmm.

When you take into account that the large majority of these ATO on the books 'landlords' only have 1 property, and they fall into it by accident, and may only hold it for a short time - this could make sense.

EG. Grandma dies and leaves the house. It's too emotional to sell it so they rent it out for a while, until they find out that it is costing them money in repairs etc. So they sell it once the emotion has died down.

I know of quite a few people who 'fell into' being a landlord, only to shake themselves free of it later because of the headspace it was occupying.

They weren't what you would call investors because they didn't plan to be there in the first place.

They made noises like, "they're good tenants so we gave them a cheap rate, and didn't increase the rent".

Makes sense they wouldn't bother with some of the finer points of deductions if they didn't plan or know about them.

My 2c anyway.
Cheers
alwayscurious

 

[TurkeyBaster]

I think the ATO figures only relate to the capital works deductions, or the old special building writeoff category, so the 24 years limit rather than 40 makes sense.

However, I still find it hard to believe that these building all have kitchens/ bathrooms etc that would be more than 24 years old, so some other factors, such as accidental landlords like alwayscurious suggests, could be part of the answer.

All of the rental properties that I or my kids have been involved with over the years have all, with only one exception, been much younger than 24 years. In metropolitan areas admittedly, deejay.

 

[marg4000]

With the popularity of inner city areas for IPs, it is logical that most are built before 1985 or so when the building depreciation deductions started.
Marg

 

[TurkeyBaster]

Marg, I'm not convinced by your argument.

I only know the Sydney, Brisbane and Gold Coast inner city areas well and when I look around, I see that the older suburbs are being in-filled with higher density housing, most of which would be younger than 25 years.

If you consider than a a couple of suburban blocks, each with one old house used as an IP on them have now been converted into tower blocks with multiple units, 30% of which are now IP, then surely the number of newer IP's would be increasing quite rapidly.

 

[TurkeyBaster]

More data from the ABS regarding the tax take by various levels of government.

http://www.abs.gov.au/AUSSTATS/[email protected]/Latestproducts/5506.0Main%20Features22007-08?opendocument&tabname=Summary&prodno=5506.0&issue=2007-08&num=&view=[/URL]

For those that subscribe to the buy and hold theory, as I do, then you would no doubt be unsurprised to learn that the State governments earn the largest portion of their income, around 40%, from property taxes.

Local government earn ALL of their tax income from property.

 

[Strannik]

probably because most people invest in inner suburbs, expecting significant capital growth and inner suburbs have mostly older houses

newer houses are mostly in outer suburbs, but not many people would buy such a house as an investment.

 

[BayView]

My guess is that part of this figure is people who don't actually know about the capital works and depreciation deductions.

There are others who don't declare their rental income, so can't and don't claim the deductions.

 

[Peter Parker]

probably because most people invest in inner suburbs, expecting significant capital growth and inner suburbs have mostly older houses

Though bear in mind that many inner suburbs have flats (1960s/70s) and newer townhouses (1980s-) and city fringe suburbs have tower blocks. A larger proportion of these than average are investor owned - most houses are owner occupied but its different with units.

newer houses are mostly in outer suburbs, but not many people would buy such a house as an investment.

The investors here might be atypical, but look at what's typically marketed to investors through the giant marketing machines like the Investors Club, Henry Kaye, John Fitzgerald, Richmastery in NZ and builders like Central Equity.

It's all new property. Mostly units but not always. And some would be attracted by the relatively high yields of student apartments or the depreciation benefits.

Hence many investors do buy new, and it can involve inner suburban properties (as you point out), particularly new units.