With the end of financial year fast approaching, now is the time to get your tax depreciation schedule sorted if you haven’t already.
There are advantages to obtaining a depreciation schedule before the 30th of June that can help you to maximise your return and make the most of your investment.
Before we look at those advantages, let’s recap what depreciation is and how this assists property investors.
The Australian Taxation Office allows property owners to claim depreciation, or decline in value, as a deduction.
Depreciation is considered a non-cash deduction, meaning an investor doesn’t need to spend any money to be eligible to make a claim. For this reason, depreciation deductions are often overlooked. This is a costly mistake for investors, as depreciation deductions carry significant taxation benefits.
With tax time approaching, property owners should be sure they are claiming all the deductions to which they are entitled, in order to maximise their returns.
Owners of income-producing properties can claim depreciation deductions related to the building’s structure as well as the plant and equipment assets* within the property.
It’s important to organise a depreciation schedule before the end of the financial year in order to maximise your deductions and claim everything you’re eligible for from the year.
Failing to claim depreciation means missing out on thousands of dollars. During FY 2017/18, BMT found investors an average first year deduction of almost $9,000.
Claim the cost of your schedule straight away
A 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.
The cost of the depreciation schedule is 100 per cent tax deductible.
One of the advantages to obtaining a depreciation schedule before the 30th of June is that an investor will be able to claim the fee straight back that financial year.
This not only means less time out of pocket, but it eliminates the risk of forgetting to claim the depreciation schedule’s fee as a deduction in the following financial year.
Partial year claims
If you have recently purchased an investment property and are waiting until the next financial year to claim deductions, you could be missing out on significant savings.
Investors can claim partial year deductions for the time in which they have owned their properties, even if it is only a matter of weeks or days before the 30th of June.
The depreciation values of assets are simply adjusted according to how long the property has been owned. For example, if a property has been owned and rented for a period of six months, the owner is eligible for 50 per cent of the yearly deductions.
If you obtain a schedule before the end of the financial year, you can also benefit from immediate write off.
Immediate write off is the full deduction of any plant and equipment items that cost less than $300. Regardless of how long you have owned the property, you can claim immediate write off for eligible items.
Low-value pooling can also be applied for plant and equipment assets valued less than $1,000, accelerating deductions in the earlier years of ownership. Applicable assets will be claimed at 18.75 per cent in the first financial year and 37.5 per cent for each year thereafter. Low-value pool rates are applied in full regardless of how long the property was owned.
Receive payments regularly using Pay as You Go (PAYG)
By arranging a depreciation schedule sooner you can access to additional cash flow throughout the year by incorporating a PAYG withholding variation.
With the help of your Accountant, submitting a PAYG withholding variation will estimate your expected tax return for the financial year, allowing your employer to take less tax out of your wages. This process can be done at any time during the year.
It’s important to speak with your specialist Quantity Surveyor to organise a tax depreciation schedule before submitting a PAYG withholding variation as this information will be used to help accurately estimate your tax return.
You will still need to visit your Accountant at the end of the financial year so they can calculate the actual amount of tax liability.
Claim missed deductions
If you have not previously claimed depreciation deductions on your investment property, the Australian Taxation Office allows you to recoup missed payments for the past two financial years by adjusting your tax return.
This is particularly useful for first time investors who were previously unaware of depreciation deductions.
It is always advisable to stay on top of your finances by claiming deductions in the same applicable year, as delaying your claim will only add extra confusion and stress to your next tax return.
Obtaining your tax depreciation schedule before the 30th of June is important if you want to maximise your returns and keep your finances on track.
If you have any questions about claiming depreciation, contact the expert team at BMT Tax Depreciation on 1300 728 726.
* 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 bmtqs.com.au/budget-2017 or read BMT’s comprehensive White Paper document at bmtqs.com.au/2017-budget-whitepaper.