Tag: Bradley beer

Categories
Expert Tips RENO ADDICT

The nine experts you need before investing in property

By Bradley Beer

While property investing is one of Australia’s favourite pastimes, it doesn’t mean it’s always an easy ride. There are ups and down and certainly rewards to reap, but you do have to put in some groundwork and planning to become a successful investor.

While this can seem overwhelming at times – especially for first time investors – the good news is that you don’t have to go it alone. There are professionals whose very job it is to help you along the way. In fact, it is recommended you have a property investment team of sorts – each player with a different role to help you towards  investing success.

As the team captain you get to pick the players, but there are the nine experts you should consider including on your team:

Image: Business2Community
  1. Accountant and/or Financial Advisor

A common goal of property investing is financial reward, but you need to use your money wisely. An accountant will help you manage your money and advise on any tax changes you should know about, as well as help you claim everything you’re entitled to. A financial advisor is slightly different and looks at your financial situation more holistically. They can help you determine your financial goals and set a realistic plan to achieve them. Ideally, your accountant and financial advisor may be one in the same, but both of these services are incredibly useful.

  1. Real Estate Agent or Buyer’s Agent

When you’re searching for your first or next investment property, it’s good to have a real estate agent or buyer’s agent you can trust. Their commission should be transparent, they should have a thorough knowledge of the local market, have a deep understanding of your requirements and be proactive in helping you find your ideal investment.

  1. Property Manager

While some investors may be tempted to self-manage their property, there are a lot of risks involved in this approach if you don’t have the knowledge or time to manage this effectively. A good property manager will help you secure quality tenants, be on top of any damage, will save you time, tell you of any requirements and will help take some of the emotion away from the process. As their fees are tax deductible this shouldn’t be looked at as an unnecessary expense.

  1. Mortgage Broker

In the past year, mortgage brokers have been gaining market share in Australia.  The 2017 Property Investment Professionals of Australia (PIPA) investor confidence survey revealed that 83 per cent of respondents are hoping to finance their next loan via a mortgage broker, up from 71 per cent last year. If you’re looking to purchase a new investment property, it may be worth speaking with a mortgage broker to help you find the best product to suit your situation and your finances.

  1. Conveyancer

There’s a lot of complicated paperwork involved in purchasing a property including the contract of sale, mortgage documents and other paperwork related to the transaction. It’s best to enlist the help of a qualified and reputable conveyancer to do this legal legwork for you. They’ll help decipher any complicated terms and conditions and translate the legal jargon. While you’re not legally obliged to hire a conveyancer, it should help you reach settlement sooner and with a lot less stress.

  1. Quantity Surveyor

Ensure you get a quantity surveyor that specialises in property depreciation to prepare your tax depreciation schedule. A specialist quantity surveyor is worth having on your team as they will ensure you’re claiming everything you are legally entitled to. A specialist will also keep on top of any tax changes so you don’t get on the wrong side of the Australian Taxation Office (ATO). The ATO recognises quantity surveyors as one of only a few professions which possess the required construction costing skills to calculate the cost of items for the purposes of depreciation.

  1. Building Inspector

It’s essential that you get a building and pest inspection carried out before you buy a property. The last thing you want is to buy a property only to later find it’s actually riddled with termites or structurally unsound. A trusted building inspector will help you determine if you have a quality property on your hands and can save you from forking out thousands on surprise repairs and maintenance after the time of purchase.

  1. A mentor

It’s great to have someone who is an experienced investor who you can turn to for advice and learn from their real life experiences. Investing in property has its ups and downs so it’s nice to have an investor friend on your side to help, even if it’s just to chat about your situation and investing plans.

  1. Yourself

While you don’t need to be an expert to invest in property, it’s important to arm yourself with some basic knowledge of the market to keep on track of how your investment is performing. It will also give you more confidence when dealing with other professionals to ensure you’re not being taken for a ride. There are many resources out there you could use to improve your investing knowledge from books, blogs, magazines and online resources to information nights and investing courses.

–Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. 
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service

Buy property with friends and increase your tax deductions

Categories
RENO ADDICT

Tax: Landlords can’t claim depreciation under new legislation

Image source: nine.com.au

By Bradley Beer

In one of the most dramatic changes to property depreciation legislation in more than 15 years, Parliament passed the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 before Christmas, with the Bill now legislation.

The new legislation means owners of secondhand residential properties (where contracts exchanged after 7.30pm on 9 May 2017) will be ineligible to claim depreciation on plant and equipment assets, such as air conditioning units, solar panels or carpet.

Image source: nine.com.au

The good news is that there are still thousands of dollars to be claimed by Australian property investors, as there has been no change to capital works deductions, a claim available for the structure of a building and fixed assets such as doors, basins, windows or retaining walls. These deductions typically make up between 85 to 90 percent of an investor’s total claimable amount.

Previously existing depreciation legislation will be grandfathered, which means investors who already made a purchase prior to this date can continue to claim depreciation deductions as per before.

Investors who purchase brand new residential properties and commercial owners or tenants, who use their property for the purposes of carrying on a business, are also unaffected.

Owners of secondhand properties who exchanged after 7.30pm on 9 May 2017 will still be able to claim depreciation for plant and equipment assets they purchase and directly incur an expense on.

To read more about the new depreciation legislation and how this applies to a range of property investment scenarios, download our comprehensive white paper document Essential facts: 2017 Budget changes and property depreciation.

It’s more important than ever to work with a specialist Quantity Surveyor to ensure that all deductions are identified and claimed correctly under the new legislation.

–Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. 
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.

Categories
RENO ADDICT

How To: Carefully claim deductions when renovating

Carefully claim deductions when renovating

Before renovating an investment property, there are a number of factors investors should be aware of, particularly as any work completed could impact the deductions available to be claimed. Below are a few considerations investors should make in order to reap the maximum rewards both in terms of adding value to the property and at tax time.

Carefully claim deductions when renovatingHow To: Carefully claim deductions when renovating

1. Claim depreciation for renovations completed by a previous owners – Often when an investor purchases an older property, at some stage since the building’s original construction, renovation work may have been completed. Although the ATO restricts property owners from claiming capital works deductions for properties constructed prior to the 18th of July 1985, they can claim capital works for renovations completed after this date, even if the work was completed by a previous owner. Quantity Surveyors will discover any previous renovations, even less obvious ones like new plumbing or electrical wiring, during a site inspection of the property.

2. Be aware that any work completed to an income producing property could affect depreciation deductions –  Investors often make the mistake of claiming renovations as repairs and maintenance. This can put them at risk of an audit by the Australian Taxation Office (ATO). The ATO provide clear definitions on the difference between repairs, maintenance and capital improvements. It is important to get it right to ensure deductions are correct and maximised. As a general rule, repairs are classified as work completed to fix damage or deterioration to a property, for example replacing part of a damaged fence. Maintenance on the other hand is work completed to prevent deterioration of the property, for example servicing a hot water system. Capital improvements occur when any work completed enhances the condition or value of an item beyond its original state at the time of purchase. This work must then be classified as a capital works deduction or as plant and equipment and depreciated over time.

3. Ask a specialist Quantity Surveyor about the deductions available before renovating  – Renovations impact the depreciation deductions available for an income producing property. Owners should consult with their specialist Quantity Surveyor prior to starting any work. This is because any items removed may have a remaining depreciable value that can be claimed as an immediate deduction in the year the asset is removed and replaced. This is a process known as ‘scrapping’. Once the renovation is completed, the Quantity Surveyor will perform a second inspection to capture details of all of the new structures and assets added to the property. An updated depreciation schedule will be produced to include the details of the deductions an investor can claim for both pre-existing assets and structures and the new items which have been added to the property

4. Choose new assets carefully when renovating to maximise future deductions – Different asset types will affect the depreciation deductions available. For example, when looking at flooring valued around $2,000 the different types have a very different result. The below table demonstrates the difference in deductions for the owner for flooring:Carefully claim deductions when renovatingThe same rule applies when claiming deductions for air conditioning. Below are the expected deductions for a property owner who owns $5,000 of cooling equipment:Carefully claim deductions when renovatingAlways consult a depreciation expert about an investment property’s depreciation entitlements. Taking full advantage of the available tax benefits on an investment property can improve a property owner’s cash flow.

Article written by Chief Executive Officer of BMT Tax Depreciation, Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA). Please contact 1300 728 726 or visit www.bmtqs.com.au for more information on how BMT can help you.

Categories
RENO ADDICT

How to find hidden value in your next investment property

How To Find Hidden Value In Your Next Investment Property

If you’re on the hunt for your next investment property, don’t discount the ‘diamonds in the rough’ AKA existing properties that may not be a brand new build.

While brand new properties are always an attractive option, providing investors with optimal depreciation claims through higher capital works deductions and plant and equipment assets, older properties can still provide substantial deductions, many of which may be hidden beneath the surface. How To Find Hidden Value In Your Next Investment Property

Continue reading “How to find hidden value in your next investment property”
Categories
Expert Tips RENO ADDICT

The deductions property investors often throw away

All too often we see investors contacting specialist quantity surveyors to organise a depreciation schedule after they have completed renovations to an investment property. In most instances this is too late for the investor to claim all of the deductions they are entitled to.

shutterstock_150655817

If a client mentions they are considering renovating their investment property, it is important to recommend they speak to their specialist quantity surveyor straight away. This is because there may be depreciation deductions available for any disposed assets or demolished building assets being removed during the renovation process.

Property investors scrap items within a property for several reasons. The most common reason is ‘not fit for purpose’ because of obsolescence, functional inadequacy or dated style.

Essentially, if an item is scrapped it is a loss to the owner. Legislation allows property investors to claim additional deductions over and above their normal depreciation claim for assets being removed from their property. The remaining depreciable value of any scrapped items can be claimed in the year these items are removed from the property.

To take advantage of deductions for scrapped assets, a depreciation schedule must be arranged both before and after the renovation takes place. This will allow the quantity surveyor to complete a site inspection of the property to value all of the items and to take photographic records of the assets contained within the property. This evidence and the pre-renovation schedule will substantiate an investor’s claims should the Australian Taxation Office complete an audit of their annual income tax assessment.

Once the renovation has been undertaken, the quantity surveyor will compile an itemised schedule which will detail the depreciation deductions available for the new plant and equipment and capital works deductions obtainable for the owner of property.

Any removed assets identified initially will show a left over un-deducted amount in the property depreciation schedule. This amount can be claimed immediately. The new assets can then be depreciated as normal based on their effective life.

Depreciation and renovation case study

Jonathan purchased a fifty year old, two bedroom house. After renting it out for two years he decided to renovate the property. In its pre-renovation condition the house contained carpet, blinds, an oven, a cook top, ceiling fans, a split system air conditioning unit, a hot water system and light shades.

Jonathan engaged a specialist quantity surveyor to complete a property depreciation schedule when he originally purchased the property two years ago. Upon hearing about the additional deductions available when renovating from his Accountant, Jonathan contacted a quantity surveyor before starting the renovation to find out more. After obtaining information and discussing the benefits, Jonathan found that he was able to use his existing schedule to work out the un-deducted value of the items which were to be removed during the renovation.

When the original property depreciation schedule was completed, a depreciation expert visited Jonathan’s house and conducted a full site inspection. During this inspection they took notes and photographs of all depreciable items. This original schedule included all of the items being removed from the property.

The table below outlines the extra deductions that became available to Jonathan during the renovation.

2016_ta646_online

Jonathan claimed $9,073 in extra deductions that year in his personal tax return. After Jonathan completed the renovation he contacted the specialist quantity surveyor to update the property depreciation schedule. They inspected Jonathan’s property again, documenting all of the new additions.

The specialist quantity surveyor calculated the construction write-off allowance now available on Jonathan’s new extension. Some of the new additions included a new oven, carpet, air-conditioning, a hot water system and blinds.

In addition to the $9,073 claimed on the removed assets, Jonathan was able to claim $8,700 in depreciation deductions on the new items in the first year alone and $29,300 in the first five years. Jonathan was able to maximise the depreciation deductions on his investment property both prior to and after the renovation by taking the depreciation schedules to his Accountant to make his claim when he completed his annual income tax assessment.

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

Categories
RENO ADDICT

Depreciation for renovations made simple

Investment property owners often miss out on thousands of dollars due to two main reasons:

  • They don’t know what depreciation entitlements they can claim for renovations or refurbishments to their investment property
  • They don’t use a qualified quantity surveyor to prepare a tax depreciation schedule.

Follow the steps below to ensure your tax depreciation schedule is right the first time around.

livingareaHome_renovation_Sstock_136905506

Understand scrapping

Scrapping refers to the removal and disposal of any potentially depreciable asset from an investment property. When worn or old assets (like carpet and hot water systems) are replaced and scrapped, the owner of the property may be entitled to claim the remaining depreciable value for the items being removed as a tax deduction in that financial year.

Get a “before renovation” tax depreciation schedule

Arranging a tax depreciation schedule before completing renovations will save you time and money when making a claim. In case of an audit by the Australian Taxation Office (ATO), a valuation of all items in a property, as well as adequate photographic records is required.

Get an “after renovation” tax depreciation schedule

A second schedule is prepared after completion of the renovation, identifying the value of all new plant and equipment and capital expenditure within the property. The adjustments will be made to your tax depreciation schedule for a small adjustment fee and should not cost you as much as the initial tax depreciation schedule. The new schedule will outline all the depreciation claims available for the life of the property (forty years).

Only deal with a credible provider of tax depreciation schedules

BMT Tax Depreciation is a leading provider of ATO compliant and comprehensive tax depreciation schedules. The qualified team at BMT meticulously prepare and customise each and every depreciation schedule, ensuring that owners maximise the deductions they are entitled to. Scrapping is a complicated process that requires the expertise of a specialist quantity surveyor in conjunction with an accountant. By requesting a tax depreciation schedule you know you’re not going to miss out on anything and your accountant will love you for it.

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

Categories
Bathrooms Kitchens RENO ADDICT

Shower yourself with $2,210 in bathroom and laundry deductions

When it comes to depreciation, the bathroom and laundry areas of a rental property contain some of the items most often missed by investors when claiming deductions.

While shower curtains and bathroom accessories such as toilet brushes, soap dispensers and hampers have relatively low depreciable values, it is items like these which can provide property investors with returns straight away.

Items contained in an investment property which have a depreciable value of less than $300 can be deducted as an immediate write-off in the first financial year after their acquisition. These plant and equipment assets experience wear and tear quickly so investors may also choose to update them frequently. This can become costly for an investor if they are not maximising their deductions and claiming them correctly.

2015_CH456

Similarly, low-cost assets which have a value below $1,000 when first purchased and low-value assets which cost more than $1,000 in the year of acquisition, but remaining deductions after the first year’s claim are below $1,000, are eligible to be added to a low-value pool. Pooling is a method by which plant and equipment items will be depreciated an increased rate of 18.75% in the first year and at a rate of 37.5% from the second year onwards.

Items which have a relatively low value add up and while bathrooms and laundries are not the only rooms in a rental property where these low cost items are found, it is a place Quantity Surveyors frequently spot them when completing a detailed site inspection.

To examine this further, let’s take a look at some of the deductions a specialist Quantity Surveyor found for a rental property owner in the shared bathroom and laundry area of their property.

In the first five cumulative financial years, the owner of this investment property can claim $2,210 in deductions from their shared bathroom and laundry area alone.

Plant and equipment assets commonly found in a bathroom such as the shower curtains, the hamper and bathroom accessories such as the tooth brush and soap holders all had low depreciable values of $30, $40 and $80 respectively. As these items all were beneath the $300 threshold, the investor could claim an immediate write-off for these items in the first financial year claim.

The washing machine on the other hand was found to have a depreciable value of $1,250. As this value does not meet the criteria for an immediate write-off or the low-value pool in the first or second year, the item must be depreciated based on an individual rate and effective life enforced by the Australian Taxation Office (ATO). However, after the first two year claims have been made the item will fall below the $1,000 threshold and the investor can then claim the remaining years at the increased low-value pool rate of 37.5%. This means, that within five years, an investor can claim $1,055 in deductions for the washing machine alone.

Clothes dryers are another common asset found in the laundry of an investment property which these same rules may apply to, depending on the depreciable value of the particular dryer found on close inspection. This is a good reason to have an expert assess the items in your property for you. A specialist Quantity Surveyor will ensure the maximum deductions for each item found within an investment property are valued and calculated correctly using the depreciation rules available.

Capital works deductions for items found in the bathroom of an investment property pertain to the structural and fixed items. Examples include the bath, tiles, sink, taps, cupboards, the shower and towel rails. Depreciation for these items will be calculated at a rate of 2.5% over forty years so long as construction commenced within the legislated dates enforced by the ATO. In the first five years, the capital works deductions found in the bathroom alone for this investor cumulate to $1,005. The results will multiply as all of the rooms within the property will have depreciation deductions available.

To maximise depreciation benefits, ask for the advice of a specialist Quantity Surveyor and obtain a depreciation schedule. The difference it can make when completing your annual income tax return and the cash flow benefit are well worth making an enquiry.

–Bradley Beer (B. Con. Mgt, AAIQS, MRICS) 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. Click here for more. 

Categories
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.

bmt

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. 

Categories
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.

shutterstock_182798585

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.

Categories
RENO ADDICT

Depreciation differences: old versus new residential properties

Property depreciation is a non-cash tax deduction available to the owners of income producing properties. As a building gets older, items wear out – they depreciate. The Australian Taxation Office (ATO) allows property owners to claim this depreciation as a tax deduction. Depreciation on mechanical and removable plant and equipment items such as carpets, stoves, blinds, hot water systems, light shades and heaters are all valid deductions. There are also deductions available for the wear and tear of the structural elements of a building, commonly called a capital works deduction.

Screen Shot 2015-05-28 at 9.02.13 am

Investors often wonder about the depreciation potential of older properties compared to new properties. The simple answer is that the owners of newer properties will receive higher depreciation deductions. However, all investment properties both new and old can attract depreciation deductions for their owners.

Newer properties have newer fixtures and fittings, so the starting value of those items is higher, resulting in higher depreciation deductions. The same applies to the capital works deduction. 2.5% of the structural costs of a building can be claimed per year for forty years. Construction costs generally increase over time, making building write-off deductions on new buildings higher.

Owners of older properties can claim the residual value of the building up to forty years from construction. For example, if an investment property is five years old, the owner will have 35 years left of capital works deductions to claim.

Capital works deductions are governed by the date that construction began. If a residential building commenced construction before the 15th of September 1987, there is no building write-off available. Investors who own properties that are built before this date will still be able to make a claim on the fixtures and fittings within the property and include any recent renovations, even if the renovation was carried out by a previous owner.

It is always worth getting advice about the depreciation potential of a property regardless of age. The deductions are not as high on older properties but there are usually enough deductions to make the process worthwhile.

The table below shows the difference a depreciation claim can make for the owners of new, old and recently constructed residential houses.

2015_T004 Old older new houses
The depreciation deductions in this case study have been calculated using the diminishing value method.

As you can see, although the owner of a newer residential house constructed after 2012 will receive much higher deductions, the owner of an older house constructed in 1980 will still receive substantial deductions. In the first financial year alone they can claim $3,298 in deductions and over five years deductions total to $12,357.

To obtain a free estimate of the deductions available in any investment property or for obligation free advice, investors can 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.

Categories
RENO ADDICT

The great division: division 40 versus division 43

In order to maximise property depreciation deductions, it is important to understand the difference between division 40 and division 43 regulations. These two main pieces of legislation affect rates at which assets can be written off and claimed. Knowledge of the difference between division 40 and division 43 assets can assist in ensuring that deductions are maximised. This is particularly important when planning to replace any existing structures or items contained within an investment property.

Young_Couple_WithLaptop_Sstock_142453459

Division 43
Otherwise known as ‘capital works allowance’ or ‘building write-off’ – division 43 is a deduction available for the structure of the building and the items within it that are deemed irremovable.

Division 43 can be claimed at a rate of 2.5% over 40 years. However, not all properties qualify for this allowance. As a rule, any residential property in which construction commenced prior to 15 September 1987 will not qualify. There are exceptions to this rule when renovating. Any renovations completed after the legislated dates set by the Australian Taxation Office (ATO) may also entitle an investment property owner to deductions, even if the renovations were completed by a previous owner of the property.

Division 40
Also known as ‘plant and equipment’, these are the removable assets found within an investment property. Examples of division 40 items which owners can claim depreciation deductions for include lights, blinds and ceiling fans.

These assets depreciate according to an individual effective life and therefore at a much faster rate than structural items. For example, in residential properties carpet can be claimed at a rate of 20% over 10 years (using the diminishing value method).

Owners of all investment properties, regardless of the property’s age, are eligible to claim deductions for these assets.

Common mistakes investors can make by incorrectly categorising items

It is easy for investors to incorrectly allocate deductions for items by not seeking expert advice. Particular assets can cause great confusion as some assets will qualify in part for division 40 deductions and partly for division 43 deductions. For example an air conditioning unit falls under division 40 whilst the ducting for the same unit falls under the division 43 allowance. Similarly, an in-ground pool falls under the division 43 allowance whilst the pumps for the pool fall under division 40.

In order to ensure your deductions are maximised within the ATO guidelines, it is essential to have a specialist quantity surveyor visit the property and complete a site inspection which lists all assets and outlines the deductions correctly.

What to be aware of when renovating

Understanding the depreciation rates of different items can help owners to make informed decisions when renovating.

Investors can make their choices to install items which will improve deductions and depreciate at a faster rate. For example carpet (division 40) depreciates at a faster rate than tiles (division 43); blinds (division 40) depreciate faster than wooden louvres (division 43) and ornamental lighting (division 40) depreciates faster than down lights (division 43).

The advantage of replacing division 40 assets is that the owner can depreciate these items within a shorter time period depending on the assets individual effective life, potentially resulting in the full depreciable value of the asset being claimed and providing the maximum deductions to the owner within just a few years.

It is also important to be aware that removing assets can affect both division 40 and 43 deductions. Any removed assets could entitle their owner to additional claims. If there is any remaining depreciable value for assets being removed, this residual value can be claimed as a 100% tax deduction in the same financial year as the items disposal.

A depreciation schedule should be arranged both before and after a renovation to capture both existing assets which are planned for removal and any new assets installed by the property owner. A specialist quantity surveyor will complete a depreciation schedule which allows owners to claim the maximum deductions possible.

Case study:

David purchased an existing house one year ago. The property was approximately fifty years old and was acquired as an investment.

After BMT Tax Depreciation conducted a detailed site inspection and noted the eligible plant and equipment, a depreciation schedule was prepared. The schedule identified $15,000 worth of depreciating assets.

Whilst the property was income producing, David claimed a total of $2,700 in deductions in his first financial year.

David decided it was time to build a new investment property on the site. In doing so the existing building was demolished and removed from site. The residual depreciable value of $12,300 became an immediate 100% deduction in the year of demolition.

The following shows some examples of division 40 and division 43 items found inside and outside of a normal home.

2014_TAJ1---Bedroom-&-bathrrom-infographic

Be sure to obtain a tax depreciation schedule from a reputable quantity surveying firm to maximise your depreciation claim. For obligation free advice for any property on the deductions available for both division 40 and division 43 assets, speak with one of the expert staff at BMT Tax Depreciation on 1300 728 726 today.

– 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.

Categories
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.

Brown&Colourful_tstock_89650365

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.

Categories
Outdoor & Exteriors RENO ADDICT

How to save money by claiming deductions on what’s outside

When it comes to claiming depreciation on investment properties, many investors are unaware of the deductions available on outdoor structures, fixtures and fittings.

ModernOutdoorFurniture_tstock_99716607

Items outside a building can add value to a property. Rather than ignoring the street appeal, investors can include items in the yard or outdoor area to help attract potential tenants. The investor can then maximise their deductions by claiming depreciation on the eligible items in the front yard, backyard and on the balconies of their properties.

Deductions can be claimed on these outdoor assets as either capital works allowance or plant and equipment depreciation.

Capital works allowance, also known as building write-off, is based on the historical cost of a structure, excluding the cost of plant and non-eligible items. Outdoor structures which qualify for the capital works allowance include:

BMT Tax Depreciation ~ Outdoor Appreciation Increases Depreciation ~ 09.12

Plant and equipment items, including removable or mechanical assets, are also eligible for depreciation deductions. Each plant and equipment item has an effective life set by the Australian Taxation Office.

The depreciation available on each item is calculated using the effective life. Some depreciable outdoor plant and equipment items commonly found outside a property include:

BMT Tax Depreciation ~ Outdoor Appreciation Increases Depreciation ~ 09.12 (2)

Assets outside a property can be worth thousands of dollars. Investors should take special notice when old assets including retaining walls, garden sheds and driveways are removed and replaced during a renovation. They may be entitled to claim 100% of the unclaimed value as a deduction. A specialist quantity surveyor is qualified to calculate values and construction costs of these items and can ensure that investors are not throwing dollars away.

— 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.

Categories
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.