Depreciation as Income for Home Loan

Discussion in 'Loans & Mortgage Brokers' started by hash_investor, 31st Mar, 2018.

Join Australia's most dynamic and respected property investment community
Tags:
  1. hash_investor

    hash_investor Well-Known Member

    Joined:
    11th Oct, 2015
    Posts:
    2,439
    Location:
    Sydney / Canberra
    I recently did an application for an IP refinance and apparently my broker is not adding the depreciation back into my income. The taxable income is obviously reduced after applying the property depreciation I received. Is this correct? I believe they should do it because taxable income is actually higher before depreciation.

    Thanks
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,598
    Location:
    Gold Coast (Australia Wide)
    Depends on lender and lvr

    Most won't like depreciation for non self employeds.

    Ta

    Rolf
     
    Terry_w likes this.
  3. TroySeven

    TroySeven Well-Known Member

    Joined:
    26th Oct, 2016
    Posts:
    52
    Location:
    Sydney
    Income extraction for rental on a Tax Return is usually just taken from gross annual rental, rather than the net figure. Using this method, they will restrict the yield to say 6%. For your other incomes on the ITR, they then can use depreciation and other add backs
     
  4. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,130
    Location:
    03 9877 3000
    Off the top of my head I can't think of a lender that accepts IP depreciatoin as an add-back in their serviceability calculators.
     
    Lindsay_W and Terry_w like this.
  5. Corey Batt

    Corey Batt Well-Known Member

    Joined:
    14th Jun, 2015
    Posts:
    2,091
    Location:
    Adelaide, SA
    Property depreciation is not used for servicing - only self employed applicants can claim business related depreciation and even then it depends on the lender, the nature of the depreciation etc.
     
  6. Redom

    Redom Mortgage Broker Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    4,607
    Location:
    Sydney (Australia Wide)
    No lender will include property depreciation, its not really treated directly as income. Some lenders have negative gearing addbacks into their calculator that partly feeds back negatively geared assets, but its generally a feedback loop with interest payments vs rent, rather than quality/newness of build.

    Self employed businesses may be able to add back depreciation for non income producing assets (cars, etc).
     
  7. Iggy

    Iggy New Member

    Joined:
    28th Nov, 2018
    Posts:
    1
    Location:
    Sydney
    Sorry to revive an old thread, but I am wondering if something has changed in the last 18 months and lenders are including depreciation in the serviceability. I suppose that for those with multiple new properties bought OTP it could significantly increase their serviceability, or am I am missing something?
     
  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Most lenders will only include it for a new build by the owner in limited cases. They are wise that Div 40 isnt available for existing property to a new owner. And lenders wont include it for a new build if there isnt a schedule to evidence the amount. Which for a OTP will be a challenge. Tends to be builds that the owner makes on their own land etc. I have been asked for a letter on a few occasions. Its a chicken or egg issue. You cant include a adjustment for something that isnt yet known.

    Lenders tend to calc neg gearing based on interest and allowed costs (some allow a flat %) Other just see the neg gearing created by depreciation ect as a bonus and disregard it.

    Broker can guide this based on lender policy.
     
    Lindsay_W likes this.

Buy Property Interstate WITHOUT Dropping $15k On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia