How Procrastination Costs Aussie Investors Billions
Why is it that we love to procrastinate? In the tax world, in particular, delays occur all too often. The fallout can be a delayed tax return or, worse still, a fine for inaction.
Why is it that we love to procrastinate? Hanging back and taking the path of inaction has almost become a national pastime – unfortunately, it’s also resulted in many missed opportunities.
In the tax world, in particular, delays occur all too often. How many of us suddenly get interested in cleaning the oven or putting our record collection in chronological order right about the time our accountant is tapping his watch and looking at us with scorn? The fallout can be a delayed tax return or, worse still, a fine for inaction.
It’s this human mindset of hiding from responsibilities that drove me to conduct some new analysis – and what I unearthed was that potentially billions of unclaimed deductibles have disappeared into the netherworld of consolidated revenue.
My research has set the foundation for one of the most convincing arguments I’ve seen for not procrastinating when it comes to commissioning your depreciation schedules.
The real numbers
I get it – depreciation isn’t a sexy subject. Fair enough – maybe they should have named it ‘Devilish Downsides’ or ‘Monster Cash Boosters’?
Regardless of its title, the depreciation schedule is an absolute ace up the sleeve for the average property investors, yet it continues to be the last thing on most of minds… and that’s a problem. Because by ignoring these handy numbers, you are missing out on a huge benefit courtesy of the ATO.
For this study, I took a long, hard look at 1000 of my clients to see how many had put off commissioning a depreciation schedule and who of them had lost money as a result. You see, once you get a schedule, you can only claim back two years of past depreciation. That means, if it took three years of property ownership before you got around to asking for your schedule, then you have forgone one year of benefits.
According to my database, 6.7 per cent of those 1000 sample clients had lost money simply by not ordering a depreciation schedule sooner. Also, my figures revealed the average number of lost years of deductions for investors who missed out because they didn’t have a schedule was 3.58 years.
That’s a pretty solid run of time that could have boosted your tax result, but you decided instead to clean the fish bowl or manicure the dog.
“Who cares,” I hear some of you say (I have excellent hearing), “Surely that doesn’t amount to much?”
Well, sadly, it does.
By my calculation, each of those who had missed out on using depreciation as a tax benefit had, on average, lost $20,537 in claimable deductions.
Imaging the sort of upside that amount could have created for the investors. Many would have moved from having a tax bill to having a tax return, simply by asking a quantity surveyor to come out and do an inspection on their property for a few hundred dollars.
We even found one client who waited almost 18 years to do a schedule and lost $41,000 in tax breaks as a result. That’s translated into a lot of handy dollars now swilling around in the Government’s coffers.
Where it gets interesting
In case your mind isn’t yet been fully blown by this missed opportunity, I’d like to apply a little extrapolation to the equation.
If my analysis is replicated across the nation’s total investor population, there are potentially 140,525 Aussies (6.7 per cent of all investor) who’ve missed out on deductions.
Given the average unclaimed amount was $20,537, this equates to a total potential loss of $2,885,967,347 in missed depreciation write-offs.
That’s right, close to $3 billion in benefits that could have been applied to investor tax returns that are now part of the ether, never to return.
That sort of money could solve a heap of world problems or, for the materialists, buy Buckingham Palace twice over, three American Major basketball teams or 52 Bombardier Global private jets.
But the real frustration is that Aussie landlords seem unaware or uninterested. Australian investors already contribute our fair share through income tax, GST, stamp duty as well as Capital Gains Tax and land tax, so any opportunity to reduce the impost should be grasped with both hands.
It beggars belief as to why we complain about cash-grabs by the ATO, yet seem fine to voluntarily give up the advantages of depreciation, simply because we failed to arrange for a report.
As the late Kerry Packer told a Senate enquiry in 1991:
“If anybody in this country doesn't minimise their tax, they want their head read. As a government, I can tell you, you're not spending it that well that we should be paying extra.""
Hear, hear KP!