A more equitable method of payment is a user-pay system. Let’s use a building’s lifts as an illustration—these are probably one of the most expensive replacement items you may be involved in replacing. This may not seem like a lot to some people, but it is in addition to the ongoing strata levies and can be seen as a potential shortfall when added to three or four other items that were not adequately paid for over their useful lives.
A building with sinking fund levies of more than 10000 dollars per year is not one that the majority of investors would be interested in purchasing and can have a significant impact on the value of the units within it.
Benefits of investing in real estate from a tax perspective:
- This section is primarily addressed to strata property investors. Utilizing the above model and suppose the lifts did not last the full 25 years.
- These 7000 dollars cannot be deducted from your taxable income for that year. The ATO considers special levies to be capital expenditures, so this one-time payment would not be taxable against your investment property. In theory, it should be deducted over time in accordance with the ATO’s guidelines for property depreciation.
- However, even though they are payments that may eventually contribute to capital expenditure and are made on a regular basis, sinking fund payments are tax-deductible for owners of investment properties. As a result, they can be considered maintenance.
- If you don’t have enough money in your sinking fund to cover your capital expenditures, you might not only have to pay the special levy, but you might also have to write it off over many years instead of all at once.
External advantages of conducting a Sinking Fund Forecast:
- A well-maintained property may have a higher resale value than a poorly maintained one.
- Future buyers may feel more confident buying within the building if there is a professional Sinking Fund Forecast in place and they are not concerned about a significant out-of-pocket surprise. A professional forecast could be thought of as a Risk Management strategy that can lower an asset’s Risk Profile from this vantage point.
- You can use a single account for all of your sinking funds; all you need to do is record how much money you have put into each item in a spreadsheet or a notebook. The money will then be in your account when it is time to pay your house insurance, and when Christmas comes around, you will also have money for that. You won’t have to feel guilty about not having any savings or about having a hard time coming up with enough money to keep your house insurance or get out of that emergency.
- This money will go into a separate account, like a savings, checking, or money market account. You can access the money whenever you need it by placing it in one of the three types of accounts and keeping separate records of it.