Understanding depreciation can provide great benefits to property professionals as they attempt to answer the questions often raised by their clients when asked about the subject.
By learning a little bit about what tax depreciation is and how investor clients can go about claiming it, they will not only assist their customers to reduce their taxable income and therefore improve their available cash flow, they will also be seen as a crucial touch point for reliable information and a trusted resource investors feel they can approach time and time again.
Amanda, a Principal and Licensee from NSW with around 700 rental properties under management, agrees.
“By discussing ways to maximise cash flows from the property, rather than just helping clients to achieve the best rent, such as by using depreciation schedules, you can create customers for life from the savings they receive,” she said.
To help explain property depreciation, below are some key facts for property professionals to help guide their investor clients on their investment journey and ensure they achieve the best possible results from the property along the way.
What is property tax depreciation?
Buildings and their contents that are used for income producing purposes are eligible to be depreciated. Similar to capital assets owned and used for income producing purposes, such as machinery, which can be depreciated over time.
The Australian Taxation Office allows owners of income producing properties to claim this depreciation as a deduction. Unlike other deductions, such as interest on a loan where you need to outlay money in order to make a claim, depreciation is considered a non-cash tax deduction.
Who can claim depreciation?
All types of income producing properties have substantial taxation benefits. The owners of both new and older properties can claim depreciation benefits which help them to reduce their tax liability.
A common myth is that older properties will attract no claim – which is untrue. It is worth making an enquiry about any property, regardless of its age.
When an investor hasn’t been claiming or maximising their depreciation, the two previous financial years’ tax returns can be amended and in some instances the Australian Taxation Office may have to return additional money back to the investor in the form of additional tax returns.
What is a depreciation schedule and what will it contain?
To ensure an investor’s claims are maximised, it is important to encourage them to seek advice from a specialist Quantity Surveyor.
A comprehensive depreciation schedule will outline all of the depreciation which can be claimed for both the original building structure, any structural additions which may have occurred during a renovation (even those completed by previous owners) and the plant and equipment contained inside the property.
As part of the process of arranging a schedule, a detailed site inspection will be performed. During this inspection the necessary measurements will be taken and all assets will be photographed to ensure no items are missed and deductions are maximised accordingly.
Below is a list of what to expect in a BMT Tax Depreciation Schedule:
- Both prime cost and diminishing value method deductions are shown for plant and equipment assets
- A forty year projection shows all of the deductions available for the life of the property
- Low-value and low-cost pooling are used to accelerate deductions
- The effective life of each asset is displayed and a total shown for the division 40 effective life and pooled assets
- A pro-rata calculation will be used when a property is acquired part way through a financial year or rented for only a percentage of the year
- Percentage based grouping of assets shows a calculation of all assets depreciated at the same percentage rate grouped and totalled
- Split reports are available when a property is owned by more than one person, resulting in higher deductions earlier
- Excel and CSV formats for residential properties are provided to Accountants for easy use with software
What do we provide to help you educate clients about depreciation?
We provide a range of additional free services to assist Property Managers such as:
- Educational training sessions on depreciation face to face or via webinar where we cover a range of frequently asked questions property professionals may have and explain how claiming deductions will help your clients
- Speakers at your next event or investor night to provide an engaging and knowledgeable presentation on depreciation to explain the cash flow benefits of claiming depreciation directly to your clients
- Articles for newsletters and publications which explain depreciation in an easy to understand way
- Co-branded tools and brochures such as our handy tax depreciation calculator which allows users to get a depreciation estimate for any property or printed materials for your office
For more information about depreciation or any of the valued services we offer, visit our Real estate professionals page on our website or speak to one of our expert staff on 1300 728 726 today.
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.