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Claim depreciation deductions this financial year

With tax time approaching, Property Managers should be encouraging their investor clients to claim all available deductions for their investment properties, including property depreciation.

Depreciation is considered a non-cash deduction, meaning an investor doesn’t need to spend any money to be eligible to make a claim. Therefore, it’s not unusual for these deductions to get missed.

The Australian Taxation Office (ATO) allows owners of income-producing properties to claim depreciation deductions for the natural wear and tear that occurs to a building and its assets over time.

Depreciation deductions relating to the building’s structure can be claimed as a capital works (division 43). As a general rule, owners of residential homes in which construction commenced after the 15th of September 1987 and commercial properties in which construction commenced after 20th July 1982 are eligible to claim capital works deductions.

Plant and equipment assets refer to the easily removable fixtures and fittings within the building such as hot water systems, carpets and blinds. Deductions for these assets are based on the condition, quality and individual effective life of each item as set by the ATO.

Investors should engage a specialist Quantity Surveyor such as BMT Tax Depreciation to discuss the depreciation potential of any investment property they own or are planning to purchase.

BMT can provide a comprehensive depreciation schedule outlining the deductions investors are eligible to claim when completing their annual income tax return.

A BMT Tax Depreciation Schedule has a one-off cost which lasts the life of the property (forty years) and will ensure the owner claims their depreciation entitlements correctly. A depreciation schedule is also 100 per cent tax deductible.

For more information on how depreciation deductions can help your clients, speak with one of 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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BMT still finding an average of $8,212 in depreciation deductions

Many of Australia’s 2.1 million property investors are still missing out on thousands of dollars in tax deductions each year by failing to maximise or claim depreciation for their rental investments.

While changes to depreciation legislation introduced on the 15th of November 2017, have impacted some investors, there are still thousands of dollars available to be claimed by property investors.

Despite the changes, BMT Tax Depreciation are still finding clients an average of $8,212 in legitimate tax deductions during the 2017-2018 financial year for residential properties. Furthermore, owners of properties directly affected by the legislation changes, i.e. second-hand residential properties where contracts were exchanged after 7.30pm on the 9th of May 2017, still had an average claim of $5,651 in the 2017-2018 financial year.

What do the changes to legislation mean for property investors?

This legislation has been grandfathered, which means if you exchanged contracts prior to 7.30pm on the 9th of May 2017 you will not be affected. However, for those who exchanged contracts on a second-hand residential property after 7:30pm on the 9th May 2017, you will no longer be eligible to claim depreciation deductions on previously used plant and equipment.

What can still be depreciated?

There are still several opportunities available to claim tax depreciation for investment properties.

New houses are still eligible for deductions on plant and equipment, as are properties considered to be substantially renovated by the previous owner.

Plant and equipment assets that have been installed and paid for by you will also continue to be tax depreciable. Other examples where you will still be able to claim deductions for plant and equipment include:

  • Deductions that happen in the course of carrying out a business
  • Deductions for a property held by public unit trusts and managed investment trusts
  • Where the property is held by a corporate tax entity.

All property investors can continue to claim depreciation for qualifying capital works. This is considered to be the building’s structure and any permanently fixed assets such as the walls, roof, doors, tiles and toilets. These deductions make up 85-90 per cent of a total depreciation claim.

Still unsure what these changes will look like for you?

It is essential for property investors to always seek expert guidance on what they can claim to ensure they are not missing out on valuable deductions and risk getting it wrong.

If you would like further information on how these changes may impact you and how simple it is to reap the maximum reward from your investment property, contact the expert team at BMT on 1300 728 726. Alternatively, visit the BMT website to request a quote and discover how the expert team at BMT can help you to find and maximise legitimate tax deductions from your investment property and ultimately increase your cash flow.

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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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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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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