Does depreciation affect servicability?

Discussion in 'Loans & Mortgage Brokers' started by Wall Street, 2nd Dec, 2015.

Join Australia's most dynamic and respected property investment community
  1. Wall Street

    Wall Street Well-Known Member

    Joined:
    22nd Oct, 2015
    Posts:
    133
    Location:
    Melbourne
    Hi all

    OK this is a potentially silly question... (directed more at brokers)

    The good
    Depreciation obviously has no cash effect, which is great as I can buy pretty things and show the bank that I still have lots of money.

    The bad
    However it takes a chunk out of my book income, which presumably looks bad when the banks ask to see my tax returns.

    The confusion
    Are the credit people sophisticated enough to see through this devious accounting slap in the face? Assuming they do, is there any stage at which they will get weary from someone claiming huge amounts of non-cash expenses?

    Thanks :)
     
    Wall Street, 2nd Dec, 2015
    #1
  2. Travelbug

    Travelbug Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    981
    Location:
    Gold Coast (from Sydney)
    I've never had banks look at my tax returns. I don't see any downside to claiming depreciation.
     
    Travelbug, 2nd Dec, 2015
    #2
  3. Marty McDonald

    Marty McDonald Mortgage broker Business Member

    Joined:
    22nd Jun, 2015
    Posts:
    880
    Location:
    Sydney North Shore and Norther beaches
    Yes depreciation and one off costs etc can be added back to the profit figures when assessing a self employed persons financial position. However if you run a trucking business for example then adding back depreciation on the trucks may be a stretch as the trucks will need to be replaced continually.

    For investors it doesn't really come into it as they aren't looking at the property section of your tax returns generally even if self employed they will strip this out and go off 80% of rental income from managing agents statements etc.
     
    Marty McDonald, 2nd Dec, 2015
    #3
    Wall Street likes this.
  4. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,171
    Location:
    03 9877 3000
    In theory the banks would add back the depreciation if they're assessing on your tax returns. Most do, but it doesn't always work out that way.

    For most people, depreciation doesn't affect their serviceability at all.
     
    Peter_Tersteeg, 2nd Dec, 2015
    #4
    Wall Street likes this.
  5. Wall Street

    Wall Street Well-Known Member

    Joined:
    22nd Oct, 2015
    Posts:
    133
    Location:
    Melbourne
    Brilliant! Yes I was thinking more in terms of property depreciation, rather than going concern depreciation (eg trucks, machinery).

    One less thing to worry about as I work on trying to strengthen my serviceability!
     
    Wall Street, 3rd Dec, 2015
    #5
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,653
    Location:
    Gold Coast (Australia Wide)
    Unless of course you are treated as self employed or are self employed and you go to Worstpac for a loan.......

    they see a paper/capital dedn as coming off your cashflow, rather than improving your real bottom line, and then encourage you to believe that all accountants and other bankers have it wrong and they arent being as "responsible".

    ta
    rolf
     
    Rolf Latham, 3rd Dec, 2015
    #6
    Wall Street likes this.
  7. Wall Street

    Wall Street Well-Known Member

    Joined:
    22nd Oct, 2015
    Posts:
    133
    Location:
    Melbourne
    Hah I know that the bank is wrong there. My wife is a CPA and she's ALWAYS right!
     
    Wall Street, 3rd Dec, 2015
    #7
  8. Mick C

    Mick C Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    206
    Location:
    Sydney
    Dep has no effect.

    In fact for self employed Dep on business tax returns will be "Added back" as income
     
    Mick C, 3rd Dec, 2015
    #8
  9. Fargo

    Fargo Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,304
    Location:
    Vic
    Yep, had that conversation with Worstpac yesterday, made a motza last year paid cash for a house yielding 8%, bought $65,000 dollars of shares in superfund, including bellamys which are up 600%, claimed over 100k in depreciation and now they want to reduce my loan because in their book my income is too low after accounting for a non recurring lease payment on an asset that will be worth more than the lease liability. WTF ! Had no problem with BoM maintaining loan limit after selling a security
     
    Fargo, 3rd Dec, 2015
    #9
  10. Wall Street

    Wall Street Well-Known Member

    Joined:
    22nd Oct, 2015
    Posts:
    133
    Location:
    Melbourne
    These are the sorts of crazy situations that I'm just trying to get my head around/prevent from occurring!
     
    Wall Street, 4th Dec, 2015
    #10