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RENO ADDICT

Buy property with friends and increase your tax deductions

The pool

Co-ownership is becoming an increasingly popular trend. Owning a property with others can provide improved purchasing power. This can be particularly useful in capital cities where it can be difficult to break into the property market.

It can also balance out the expenses of owning an investment property including ongoing repairs, maintenance and fees. Additionally, co-ownership can provide improved depreciation deductions, allowing more items to be depreciated at a higher rate. This is where a BMT Tax Depreciation split report can assist.

How does a split report work?

A split report calculates depreciation deductions based on each owner’s percentage of ownership for each asset. This involves splitting the value of the assets based upon each owner’s interest in the assets before applying depreciation rules.

In a scenario where there is just one owner, legislation allows property investors to claim an immediate write-off for assets with an opening value of $300 or less. However, when an investment property is co-owned by two parties with a 50:50 ownership share, a split report allows the owners to each claim an immediate write-off for items where their interest in the asset is below $300. This means the owners can claim an instant write-off for items which are less than $600 in total value.

The same method can be used when applying low-value pooling. Where an owner’s interest in an asset is less than $1,000, these items will qualify to be placed in a low-value pool. This means they can be claimed at an increased rate of 18.75 per cent in the first year regardless of the number of days owned and 37.5 per cent from the second year onwards.

In a situation where ownership is split 50:50, by calculating an owner’s interest in each asset first, the owners will qualify to pool assets which cost less than $2,000 in total to the low-value pool.

Distributing the value of assets based upon the percentage of ownership first will increase the number of assets which investors are eligible to claim an immediate write-off or low-value pooling for. As a result, the rate at which depreciation deductions can be applied will be accelerated and the owners will receive increased deductions in the earlier years of ownership.

BMT’s split reports simplify this process and allow owners to get more from their investment. Each split report can also be provided in CSV format for easy importing into accounting software.

There is an option for owners who prefer a depreciation schedule without any split applied should this be required.

Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Click here for more.

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Outdoor & Exteriors RENO ADDICT Shopping

Outside there’s $3,491 more in deductions to be claimed

As summer brings warmer weather to our backyards, it is a great time for property investors to think about the outdoor areas of their investment properties.

Outdoor areas in investment properties contain a number of structures and assets which are worth thousands of dollars for their owners. These items also experience wear and tear over time. The Australian Taxation Office (ATO) allows owners of income producing properties to claim this wear and tear as a depreciation deduction when completing their annual income tax assessment with an accountant.

Before an investor can claim depreciation, it is recommended they consult with a specialist quantity surveyor to arrange a tax depreciation schedule for the property. A tax depreciation schedule will outline all of the deductions available for the structure of the property as well as the plant and equipment assets contained both inside and outside of the property.

The deductions a specialist quantity surveyor outlines on a depreciation schedule are split into two types. Structural items will be classified as capital works deductions, while assets which can be easily removed from the property can be claimed as plant and equipment depreciation.

Items classified as capital works will depreciate at a rate of 2.5 per cent each year over forty years. Plant and equipment assets, on the other hand, each have an individual effective life as set by the ATO.

The following graphic shows some of the depreciable plant and equipment assets and structural items found within the yard of an investment property as well as the first year depreciation deductions an investor could claim for these items.

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Examples of outdoor structures which depreciate, as shown in the graphic, include the in-ground swimming pool, pool fencing, shade sails, pavers and window awnings. Other common structural assets found in the yard which depreciate include concrete slabs, clothes lines and sleepers.

Depreciable plant and equipment assets found in the yard of the pictured property included solar garden lights, outdoor furniture, garden watering systems, swimming pool filters and chlorinators. Other common examples of depreciable plant and equipment assets which might be found in the yard include garbage bins, garden sheds and freestanding barbeques.

As the assets outside a property experience wear and tear, it also makes sense to check in regularly with your property manager to see if there are any necessary repairs and maintenance required. If there are, it is also best to check with your specialist quantity surveyor before completing any work to the property.

While work completed to repair damage (such as mending part of a fence) or to prevent deterioration to a property (for example oiling a deck) is able to be claimed as an immediate deduction in the year of the expense, any work which improves the condition or value of an object beyond it’s original state at the time of purchase will be considered a capital improvement. Capital improvements completed will also be classified as either capital works deductions or depreciated as plant and equipment using the asset’s individual effective lives.

If an investor already has a depreciation schedule and plans to complete improvements to the yard, a specialist quantity surveyor can provide information on any remaining deductions for items planned for removal. Removing items could entitle an investor to claim additional deductions using a process known as ‘scrapping.’ Using this process, any remaining depreciable value can be claimed as a deduction in the financial year the item is removed.

When any new structural additions or plant and equipment assets are added to an investment property, it is recommended to ask your specialist quantity surveyor to provide an updated depreciation schedule outlining the deductions for any new items.

Maximising depreciation deductions for items outside a property and carefully considering whether any improvements can be made can add thousands of dollars to an investor’s pocket. It also can add additional value to the property and appeal to tenants, helping to increase your rental return.

Quantity surveyors can provide a free estimate of the depreciation deductions available in any investment property. To request an estimate and obtain their advice, click here.

— Bradley is the chief executive officer of BMT Tax Depreciation. Bradley joined BMT in 1998 and as such he has substantial knowledge about property investment supported by expertise in property depreciation and the construction industry. 

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Outdoor & Exteriors RENO ADDICT

How to earn money from your granny flat

The rise in popularity of granny flats can be attributed to two things: in part state-level legislative changes regarding secondary dwellings which aim to boost housing affordability in capital city areas and also because of their affordability and capacity to achieve high rental yields. Data from our depreciation schedules suggest that while the average granny flat will cost $121,000 to construct, the owners can usually achieve a 15% rental yield on this investment.

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In order to maximise the benefit of this yield, it is important for granny flat owners to understand their depreciation entitlements. When a secondary dwelling is income-producing the owner is entitled to substantial deductions due to the wear and tear of the building structure and the plant and equipment assets contained, even if they are currently occupying the primary residence on the property.

Research conducted by BMT Tax Depreciation has shown that the average first year depreciation deduction for a granny flat is $5,288, accumulating to $23,713 in deductions over the first five years of ownership. Shared areas between the granny flat and owner-occupied property such as patios, pools and barbecues may also entitle the owner to additional depreciation deductions, claimed based on the tenant’s usage percentage.

As each state or territory provides their own legislative requirements, including the land and plot sizes of a secondary dwelling or granny flat, the table below provides a summary to assist investors and also outlines the average first year depreciation deductions which can be found for properties of these sizes.

2015_T002 ~ Granny Flats
*The first year deductions in this example are based on an average claim for a property of this size. ** Deductions based on a 60m2 plot size. ***In QLD, VIC and SA granny flats cannot be used as income producing secondary dwellings.

Investors who are evaluating the cash flow potential of constructing a granny flat or a secondary dwelling on their property for rental purposes should speak with a specialist quantity surveyor for advice. They will be able to provide an estimate of the depreciation deductions which will become available once the property is available for rent. It is also recommended to speak with an accountant for advice on any of the capital gains tax implications of investing in a granny flat as there are a number of factors investors should be aware of if they ever decide to sell their home or subdivide the property later down the track.

Those who already own and rent a granny flat or secondary dwelling should also obtain a tax depreciation schedule from a specialist quantity surveyor which outlines the depreciation deductions they will be able to claim when they visit their accountant to perform their annual income tax assessment.

To learn more about tax depreciation for any investment property, visit the BMT Tax Depreciation website. Alternatively, for obligation free advice, contact one of the expert staff at BMT Tax Depreciation on 1300 728 726.

– Bradley Beer is the managing director of BMT Tax Depreciation. A depreciation expert with over 16 years experience in property depreciation and the construction industry.

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RENO ADDICT

How to save money by claiming tax deductions on furniture in a rental property

Often property investors rent out their property fully furnished. Depreciating furniture can add thousands of dollars to the owner’s depreciation claim.

The below table provides an example of the difference that claiming depreciation on a $16,000 furniture package could make to an investor who purchased a two-bedroom two-bathroom unit:

2014_TQ1 - Without and Without Furniture

It is important that a specialist quantity surveyor prepares a tax depreciation schedule for an investment property before the owner lodges their tax return. A quantity surveyor will carry out an inspection on the property to identify more plant and equipment items and apply depreciation legislation to maximise depreciation deductions for the owner.

BMT Tax Depreciation complete reports for over 10,000 accountant referrals each year, with reports showing an average of $5,000 to $10,000 as a first full year deduction.

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For further information on depreciation, property investors can visit BMT Tax Depreciation’s What is Depreciation page.

– Bradley Beer is the managing director of BMT Tax Depreciation. A depreciation expert with over 16 years experience in property depreciation and the construction industry.

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DIY RENO ADDICT

Claiming tax back on investment properties: the basics

Property investors often worry about ongoing repairs and maintenance costs, however these concerns can often be reduced by claiming back these costs when completing a tax return. Before claiming deductions, it is necessary for investors to understand the difference between claiming repairs, maintenance and capital improvements.

bmt reno addict

Repairs

The Australian Taxation Office (ATO) defines repairs as work completed to fix damage or deterioration of a property, for example replacing part of a damaged fence. A deduction cost paid to repair a rental property can be claimed as an immediate 100% deduction in the year the expense is incurred.

Maintenance

Maintenance is defined as work completed to prevent deterioration to a property, for example mowing the lawns. Costs for maintenance of a rental property can also be claimed as an immediate deduction in the year the expense is paid.

Capital improvements

Improving the condition or value of an item beyond its original state at the time of purchase is defined as a capital improvement. These are classified as either capital works deductions or plant and equipment and must be depreciated over time. Capital works deductions include renovations such as adding an internal wall and also include items which cannot easily be removed from the property. Plant and equipment items include removable items such as carpet and hot water systems.

– Bradley Beer is the managing director of BMT Tax Depreciation. A depreciation expert with over sixteen years experience in property depreciation and the construction industry.