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Commonly missed deductions

Depreciation is a complex area, so unless you’re a specialist Quantity Surveyor or a qualified Tax Accountant, it can be hard to wrap your head around it.

As such, investors miss deductions all the time, meaning they could be losing out on thousands of dollars.

Research shows that 80% of property investors are failing to maximise the deductions claimed from property depreciation.

So why are so many investors missing out and what deductions commonly go missed?

Why are deductions missed?

There are a few reasons why deductions may be missed or not maximised.

  • The first is that many investors remain unaware of depreciation and that it’s even a valid claim. This is possibly because it is a non-cash deduction, meaning the investor does not need to spend any money in order to make a claim. Furthermore, they may not realise the significant deductions available and may falsely consider it a minor claim not worth their time.
  • They may not be getting a specialist to prepare a tax depreciation schedule. Quantity Surveyors are one of a few professionals recognised by legislation (Tax Ruling 97/25) to have the appropriate construction costing skills to calculate building costs for capital allowance claims. You should ensure you seek the services of a Quantity Surveyor who specialises in property depreciation to ensure claims are maximised. A specialist will have up to date knowledge of legalisation and the tools and tricks available to maximise deductions in a legally compliant manner. They will also ensure that no asset goes unaccounted for.
  • Many investors are unaware that they can make a claim for renovations completed by a previous owner. So long as they fall within the qualifying date for capital works, these previously completed renovations are a valid claim and can provide significant deductions for current owners.
  • Unusual or small items often go overlooked. Even if they’re aware of depreciation, many investors don’t realise that things as simple as door stoppers, shower curtains and spa bath pumps can attract a depreciation claim. While they may seem small, these items can really add up in a depreciation claim.
  • Some investors will choose to make a self-assed claim. This is risky for a variety of reasons. Many investors do not have the technical knowledge of a trained professional and as such, they can overlook important items or make an incorrect claim, which may mean it is not compliant and puts them at risk in the event of an ATO audit. It’s always best to get an expert on board to prepare your tax depreciation schedule.

What assets are commonly missed?

As previously mentioned, renovations made by previous owners are commonly missed. Speaking of renovations, if an investor is currently completing a renovation, they may be eligible to scrap any assets they’re getting rid of in the renovation. This means they can claim the remaining depreciable value for certain assets. This can be commonly missed if a specialist Quantity Surveyor has not provided assistance.

Furthermore, a Quantity Surveyor will know how to make use of different strategies and tools to maximise deductions sooner, such as the low value pool. If this is overlooked, it can result in valuable deductions going unclaimed.

Finally, small or unusual items are often overlooked, deemed too insignificant by investors to warrant making a claim.

Some examples include:

  • Garbage bins
  • Door closers
  • Rugs
  • Smoke alarms
  • Exhaust fans
  • Electric clocks
  • Freestanding bathroom accessories
  • Shower curtains
  • Spa bath pumps
  • Garbage disposal units
  • Tennis court nets
  • Automatic window shutters
  • Freestanding garden sheds
  • Intercom system
  • Electric water filters
  • Ceiling fans
  • Solar garden lights
  • CCTV systems
  • Water feature pumps; just to name a few

These deductions may seem small, but they do add up for property investors and should not be overlooked.

What’s the solution?

When it comes to property depreciation, it’s always best to employ the services of a Quantity Surveyor that specialises in tax depreciation, such as BMT, to prepare a tax depreciation schedule for your investment property.

This will not only ensure that these deductions are not missed, but that deductions for all qualifying assets are maximised and compliant with ATO legislation.

This schedule will cover the life of the property, can be easily used by your Accountant when preparing your tax returns and will ensure that these commonly missed deductions will not go unnoticed.

Article provided by BMT Tax Depreciation.

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.

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New to Rent: Innovative service for Property Managers

Of all the tax deductions available to property investors, depreciation is the most often missed. According to Bradley Beer, the Chief Executive Officer of BMT Tax Depreciation, a staggering 80 per cent of property investors fail to take advantage of property depreciation.

“On average, most property investors can claim between $5,000 and $10,000 in deductions in the first year for a residential investment property, said Mr Beer.

Depreciation is a non-cash deduction that the Australian Taxation Office (ATO) allows any owner of an investment property to claim due to the wear and tear of a building over time.

BMT’s latest value-adding tool for property professionals, New to Rent, provides Property Managers with complimentary depreciation estimates tailored for each rental property their agency lists.The estimates highlight the difference depreciation can make to an investor’s cash flow and ultimately help industry professionals establish a point of difference in today’s competitive property management industry. For investor clients, being advised of the potential depreciation deductions they could be claiming is a valuable source of information, helping them to determine their after-tax cash position. The New to Rent process is simple:

  1. Our depreciation experts will identify each rental property listed online
  2. The depreciation estimates for these properties will be emailed to the Property Manager
  3. The Property Manager can forward the estimate through to the owner, showing them the deductions they could be entitled to claimTake advantage of this free service today.

Sign up at bmtqs.com.au/new-to-rent-sign-up or call 1300 268 277. This feature is also available through MyBMT. 

To register simply visit mybmt.bmtqs.com.au. Article provided by BMT Tax Depreciation. Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Please contact 1300 728 726 or visit bmtqs.com.au for an Australia wide service.

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Increase your deductions sooner using the low-value pool

When it comes to claiming depreciation deductions for qualifying plant and equipment assets*, property owners should be aware of certain tactics which can increase their deductions sooner.

This will increase their annual cash flow and allow them to realise the benefits from their investment property sooner.

One of the simplest ways to do this is to claim immediate write-off or to place low-value or low-cost assets into a low-value pool.

Certain assets may qualify for either an immediate write-off or the low-value pool, depending on the value of the asset at purchase.

For example, if an asset is valued at $300 or less, the owner will be entitled to write-off the full amount in the first year.

If the asset is valued at $1,000 or less, increased rates of depreciation can be applied through the low-value pool.

Low-value pooling                                                                    

Low-value pooling legislation allows owners to group qualifying depreciable assets in a pool which will depreciate at an accelerated rate. Assets normally depreciate at a pre-determined rate set by the ATO, which varies between assets. Property investors who acquire low cost assets and choose to place them in the low-value pool can claim them at a rate of 18.75 per cent in the year of purchase, regardless of how long the property has been owned and rented. From the second year onwards the remaining balance of the item can be claimed at a rate of 37.5 per cent per year.

Low-cost assets

A low-cost asset is a depreciable asset that has an opening value of less than $1,000 in the year of acquisition. This can include things like cooktops, range-hoods, exhaust fans and blinds.

Low-value assets

A low-value asset is a depreciable asset that has a written down value of less than $1,000. That is, the value of the asset is greater than $1,000 in the year of acquisition. However, the residual value after previous years’ depreciation is less than $1,000. Assets meeting this classification are placed in an itemised, low-value pool. An example could include a hot water system acquired with a value of $1,100. In the second financial year of ownership, the asset would have depreciated to a written down value less than $1,000, which would make it eligible to be placed in the low-value pool.

* Under new legislation outlined in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 passed by Parliament on 15th November 2017, investors who exchange contracts on a second-hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on previously used plant and equipment assets. Investors can claim deductions on plant and equipment assets they purchase and directly incur the expense for. Investors who purchased prior to this date and those who purchase a brand-new property will still be able to claim depreciation as they were previously. To learn more visit www.bmtqs.com.au/budget-2017 or read BMT’s comprehensive White Paper document at www.bmtqs.com.au/2017-budget-whitepaper.

Article provided by BMT Tax Depreciation.
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.

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BMT Tax Depreciation

June 30 is almost here

Help your clients claim thousands of dollars in deductions

Request a quote here

Although there have been recent changes to depreciation legislation there are still thousands of dollars in deductions to be claimed by property investors.

BMT Tax Depreciation still offer our Fee Guarantee, meaning that if we can’t obtain at least double our fee in deductions in the first full financial year then there will be no charge for our services.

Log into MyBMT to access your depreciation schedule and more.

Our office hours have been extended to 7pm until June 30

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The depreciation rules may change but the goal is the same

by Real+ partners BMT Tax Depreciation

Those considering purchasing an investment property will often ask whether a commercial or a residential property will provide them with more deductions in the form of depreciation.

There are many important factors an investor needs to be aware of when making their choice between these two investment options.

Types of depreciation, how the rules change

Depreciation deductions apply to investment properties in two ways. Deductions can be claimed for the depreciation of the building structure known as a capital works deduction, and for the plant and equipment assets* contained within the property.

In a commercial investment property, the commencement date the Australian Taxation Office (ATO) allows investors to claim the available capital works deductions, (structural items such as the bricks, building and roof) is the 20th of July 1982. While in residential properties, capital works can only be claimed for properties in which construction commenced after the 15th of September 1987. Depending on the age and type of building, you can claim either 2.5 per cent or 4 per cent annually of the property’s historical construction cost for the capital works allowance.

The deductions for plant and equipment assets contained in both residential and commercial properties will depend on the individual effective lives of each asset as set by the ATO. In the case of residential properties, it also depends on the purchase date of second hand properties*. However, the ATO does deem that some assets used in one commercial industry may depreciate at a higher rate than they would in a residential property or even a different commercial industry. One example of an asset which does this is carpets, which will depreciate at a higher rate in restaurants and pubs than in retail office buildings or a residential dwelling.

In commercial properties, tenants can also claim

In commercial properties, the ATO makes allowances for the tenants to be able to claim some depreciation for assets. Commercial tenants are able to claim depreciation on any fit-out they add from the starting date of their lease. This can include assets such as desks, blinds, shelving, carpet, vinyl, fire fighting equipment and security systems. If a commercial tenant removes items at the end of their tenancy and disposes of the item, they may also be able to claim the remaining depreciation for assets removed and scrapped when they vacate the property.

If the owner of the asset decides to on-sell items installed or keep them for future use, this does not apply. In cases where items are on-sold the tenant should always discuss this with their Accountant as this may have other tax implications. It should also be noted that commercial building owners are also entitled to claim depreciation of assets installed and left behind by a previous tenant once a tenancy has ceased, so it is important to contact a Quantity Surveyor to ensure that each party makes their claim correctly.

Rules about claiming and occupancy of the property

Legislation from the ATO states that a residential property owner cannot claim depreciation for a building they themselves solely occupy. They can only claim depreciation on a building that is income producing.

In a commercial property however, there are ways that the owner can occupy the investment property and still be able to claim depreciation. For example, if the property is purchased by a company or a trust, the owner may still be able to occupy the premises as a tenant and claim property depreciation.

It is also worth mentioning that the ownership structure can have an impact on what marginal tax rate when making a depreciation claim.

Consult with a depreciation expert

No matter what type of property an investor chooses to buy, it is recommended they contact a specialist Quantity Surveyor for further advice on the depreciation that may apply to their building.  A Quantity Surveyor will arrange a site inspection, take measurements and estimate the structural costs as well as assess what plant and equipment items the building contains. They will then provide a tax depreciation schedule outlining all of the depreciation deductions available for the property owner’s annual tax assessment.

* Under new legislation outlined in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 passed by Parliament on 15th November 2017, investors who exchange contracts on a second-hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on previously used plant and equipment assets. Investors can claim deductions on plant and equipment assets they purchase and directly incur the expense for. Investors who purchased prior to this date and those who purchase a brand new property will still be able to claim depreciation as they were previously. To learn more visit www.bmtqs.com.au/budget-2017 or read BMT’s comprehensive White Paper document at www.bmtqs.com.au/2017-budget-whitepaper

To obtain a free estimate of the deductions available in any investment property or for obligation free advice, contact the expert team at BMT Tax Depreciation on 1300 728 726.

Article provided by BMT Tax Depreciation.
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.

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