» Depreciation news

Investing in childcare centres

BMT team — Mon, 11 Sep 2023 05:09:39 +0000

The demand for reliable childcare services continues to surge, making owning and operating childcare centres a strategic move that positions owners at the heart of this growing demand while contributing to essential community support. In contrast to industries that experience fluctuations tied to economic cycles, childcare services offer a more dependable income stream. The enduring need for high-quality childcare results in consistent occupancy rates and reliable cash flows. This inherent stability provides owners with a solid financial foundation, shielding them from the volatility that often characterises other sectors. This article examines the benefits that investing in childcare centres provides to owners, including depreciation deductions and the Small Business Energy Incentive. Unlock financial potential with depreciation A significant financial benefit of investing in childcare centres lies in depreciation deductions. Depreciation can be claimed on both a property’s structure and permanent assets (categorised as capital works deductions) and easily removable or mechanical assets (categorised as plant and equipment depreciation). Examples of capital works in a childcare centre could include things like sinks and basins, flooring and sand pits. Plant and equipment assets would be items like free-standing furniture, kitchen appliances and play equipment. By claiming depreciation, owners can effectively decrease their taxable income, leading to enhanced cash flow and reduced tax liabilities. Childcare centres can yield substantial depreciation deductions, enhancing the financial appeal of these investments. Small Business Energy Incentive The Small Business Energy Incentive offers a pathway to align investment with sustainability goals. Under the Small Business Energy Incentive, businesses with an aggregated turnover of less than $50 million can deduct an additional twenty per cent of the cost of eligible depreciating assets that support electrification and more efficient use of energy. Businesses can qualify for this incentive on a total expenditure of up to $100,000 for which the cost is incurred, between 1 July 2023 and 30 June 2024, with a maximum bonus deduction capped at $20,000. Childcare centres can adopt energy-efficient technologies, accessing incentives that not only reduce operational costs but also contribute to a greener future. This enhances profitability while supporting responsible environmental practices. Instant Asset Write-Off The Instant Asset Write-Off allows small businesses using the simplified depreciation rules to claim an immediate deduction for the business portion of qualifying assets. Under the Instant Asset Write-Off, businesses with an aggregated turnover of less than $10 million can immediately deduct the full cost of qualifying assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. This is on a per-asset basis, meaning multiple assets can be written off as long as they qualify. Case study: Childcare centre applies available government incentives In August 2023, “Harry’s Childcare Centre” undertook a facility upgrade, allowing the owners to qualify for both the Small Business Energy Incentive and the Instant Asset Write-Off. The upgrade involved the installation of new furniture, equipment, and energy-efficient assets, leading to a substantial reduction in taxable income and enhanced financial returns. BMT illustrates the application of the Instant Asset Write-Off and the Small Business Energy Incentive. Table 1: Application of the Instant Asset Write-Off Table 1 demonstrates the application of the Instant Asset Write-Off and the assets installed. The implementation of the Instant Asset Write-Off provided an immediate deduction of $20,243 for eligible assets. For the purpose of this case study, the assets have been grouped together, however, the Instant Asset Write-Off is applied on an asset-by-asset basis. Table 2: Application of the Small Business Energy Incentive Table 2 illustrates the breakdown of how the Small Business Energy Incentive is applied to energy-efficient assets. Thanks to the twenty per cent bonus, an extra $3,092 was claimed in addition to the initial $15,461, resulting in a total of $18,553 for this incentive. Overall, the owners of Harry’s Childcare Centre were able to claim a total of $38,796 in addition to their annual depreciation claim through the application of the Small Business Energy Incentive and the Instant Asset Write-Off. This allowed them to recoup a portion of the costs associated with the upgrades in the same financial year. For investors seeking diversification and scalability, childcare centres offer a compelling avenue. With scalability as a foundational principle, you can expand your investment portfolio, explore untapped markets, and establish multiple revenue streams. The rising demand for quality childcare services positions your investment for sustainable expansion and long-term prosperity. To gain further insights into how investors can effectively integrate depreciation into their investment strategies, reach out to BMT on 1300 728 726 or Request a Quote.

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Government stimulus package to maximise commercial property cash flow for businesses

BMT team — Fri, 13 Mar 2020 02:15:26 +0000

The Morrison Government has announced a $17.6 billion economic plan in response to the challenges posed by the coronavirus. A media release from the Prime Minister’s office yesterday explained the plan is to keep Australians in jobs, keep businesses in business and support households in the Australian economy. The targeted stimulus has a number of elements focused on helping 3.5 million businesses across the country that employ more than 9.7 million employees, or three in every four workers. In this article, we will cover: Instant asset write-off threshold increase 15-month investment incentive Business cash flow assistance What the stimulus means for business owners Instant asset write-off threshold increase The Government announced $700 million to increase the instant asset write-off threshold from $30,000 to $150,000. This increase has been extended to include businesses with an aggregated annual turnover of up to $500 million. The instant asset write-off increase and expansion is now in place and will be until December 31 2020. As a result, many assets purchased from now until June 30 2020 that would have previously been depreciated over their effective life or in a small business pool, will now be written-off immediately. Here are some examples of assets that business owners will now be able to write-off: Industrial gantry cranes: $120,000 Air-conditioning large office: $100,000 Cool room in pub: $80,000 Farmer tractors: $70,000 Mechanic Spray booth: $50,000 15-month investment incentive $3.2 billion was announced to encourage business investment by introducing a fifteen-month investment incentive set to expire June 30 2021. The incentive will support business investment and economic growth by accelerating depreciation deductions for remaining assets not affected by immediate write-off changes. Businesses with a turnover of up to $500 million will be able to deduct fifty per cent of the asset cost, plus an additional amount of the standard depreciation on the remaining balance, in the year of purchase. Business cash flow assistance In addition to the depreciation and investment incentives, the Government has also announced funding to further support employment and businesses who employ apprentices and trainees. $6.7 billion will be dedicated to boost cash flow for employers by up to $25,000 with a minimum payment of $2,000 for eligible small and medium-sized businesses. This tax-free cash flow boost will support businesses with a turnover up to $50 million that employ staff between 1 January 2020 and 30 June 2020. $1.3 billion will be dedicated to support small businesses and the jobs of their apprentices and trainees. Eligible employers will be able to apply for a wage subsidy of 50 per cent of the apprentice’s and trainee’s wages from 1 January 2020 to 30 September 2020. What the stimulus means for business owners It’s clear that the Government is serious about supporting Australian business through the coronavirus pandemic. This stimulus will allow business owners to further maximise their cash flow with the immediate asset write-off increase and expansion, and by claiming higher depreciation deductions sooner. To ensure they take advantage of the stimulus, business owners and tenants must have a comprehensive tax depreciation schedule. BMT Tax Depreciation has been the business owner’s choice for over the past twenty years. To learn more, Request a Quote or contact our expert team on 1300 728 726.

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Property investors prompted that the tax return deadline is looming

BMT team — Fri, 26 Oct 2018 05:40:16 +0000

While depreciation deductions provide a valuable opportunity for property investors to maximise their cash flow, this could be reduced if you fail to lodge your tax return on time and don’t seek expert advice. A key deadline if you are planning to lodge your 2017/2018 tax return online as a self-assessed claim without the help of an Accountant is the 31st of October. However, by lodging your return online, you could be at risk of missing out on valuable deductions or even put yourself at risk of an Australian Taxation Office (ATO) audit. Property depreciation is a genuine tax deduction that property investors can claim against their income, yet annually, countless Australians miss out on property depreciation. Unlike most tax deductions, property depreciation is a ‘non-cash expense’, meaning you don’t actually need to splash out the cash every year in order to make a claim. However, you do need a valid tax depreciation schedule, which is 100 per cent tax deductible. If you’re preparing your tax return and own an investment property, it’s important to contact a specialist Quantity Surveyor and obtain a comprehensive tax depreciation schedule. Quantity Surveyors are recognised by the ATO as one of a few professionals with the necessary knowledge to calculate construction costs for depreciation purposes. Together with your Accountant, they can provide guidance to steer you on the right path to ensure your claim is correct and you receive the best possible deductions. This also means you’ll have the adequate evidence necessary should the ATO question any of your claims. Legislation changes for property investors As part of the 9th of May 2017 federal budget, the Australian Government proposed changes to rental property depreciation deductions. This has caused some confusion amongst property investors in regard to what can be claimed. It’s important to remember that the change in legislation only affects second hand residential properties. The good news is there has been no change to legislation for capital works (division 43) assets. This means investors can still claim deductions for the irremovable structural elements of a building such as ceilings, foundations, walls, swimming pools, windows and toilets. The changes only apply to plant and equipment (division 40) assets, which includes assets that are not part of the properties structure such as carpets, ovens, dishwashers, blinds and smoke alarms. To read more about the new depreciation legislation and how this applies to a range of property investment scenarios, download BMT Tax Depreciation’s comprehensive white paper document Essential facts: 2017 Budget changes and property depreciation. Self-assessed vs expert assessed schedule It is not uncommon for a property investor to self-assess or estimate costs for their investment property, based on their own judgement, potentially missing out on significant depreciation deductions. A depreciation schedule prepared by a qualified Quantity Surveyor will ensure all depreciation claims are maximised within ATO legislation and that no depreciable assets are overlooked. Following is a real example of a client’s self-assessed depreciation deductions compared to the depreciation deductions identified by a BMT Tax Depreciation expert for an investment property. Example: The client purchased a brand new three bedroom house in an outer Sydney suburb for $689,000. *The depreciation deductions within the example have been calculated using the diminishing value method. In the first full year BMT identified an extra $7,402 in depreciation deductions and an extra $29,612 in deductions in the first five years. When completing a depreciation schedule, BMT Tax Depreciation will inspect the property to ensure no items are missed. The completed schedule can then be shared with your tax agent. For more information on property depreciation and what deductions you can claim from your investment property, visit the residential property depreciation page on the BMT Tax Depreciation website. Alternatively, you can contact the expert team at BMT on 1300 728 726 for obligation free advice.

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Do the depreciation legislation changes affect me?

BMT team — Tue, 25 Sep 2018 01:23:52 +0000

On 15 November 2017, Parliament passed the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017, which brought about some major changes to ‘plant and equipment’ depreciation claims. Plant and equipment depreciation refers to the deductions an investor can claim for the wear and tear that occurs to the fixtures and fittings located within a property. They are referred to as assets, which are considered by the Australian Taxation Office (ATO) to be easily removed from the property. Investors can claim depreciation deductions for more than 6,000 different ATO recognised assets, such as the carpets, blinds, dishwashers, hot water systems, smoke alarms and ceiling fans. Each of these assets is assigned an individual effective lifespan and depreciation rate by which depreciation of the asset is calculated. The depreciation rates and effective lives of all ATO specified plant and equipment assets differ by each individual asset and even by individual industries. The ATO recognises that plant and equipment items will wear out more quickly than the building itself and will likely need replacing sooner. The legislation changes mean that owners of second-hand residential properties (where contracts exchanged after 7:30pm on 9 May 2017) can longer claim depreciation on existing plant and equipment assets located within their property. However, owners of affected properties can still claim depreciation on the ‘plant and equipment’ assets they purchase for their property directly. It is important to note that there are still thousands of dollars to be claimed by Australian property investors, as there has been no change to ‘capital works’ deductions, or building write-offs, which typically make up between 85 to 90 per cent of an investor’s total claimable amount. Investors who have already purchased prior to this date can continue to claim depreciation deductions as before. 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. BMT Tax Depreciation will show you how to claim more deductions, pay less tax and see a greater return on your investments. BMT Tax Depreciation schedules are designed specifically for ease of use by Accountants to incorporate depreciation deductions into an investors’ income tax assessment. All information is prepared in full compliance with ATO regulations, meaning that deductions are detailed and evidenced correctly in the event of an audit. Alternatively, you can contact one of our expert staff on 1300 728 726 for a free estimate of available deductions. Find out more about the 2017 depreciation legislation and how this applies to a range of property investment scenarios.

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Seven things you can’t claim depreciation for

BMT team — Tue, 30 Jan 2018 00:53:46 +0000

On BMT Insider we regularly go into the many different assets and properties you can claim depreciation for. But something new clients in particular might want to know, in reverse, is what they cannot claim depreciation for in their investment property. The good news is that most physical assets you can claim, so the list of what you cannot claim is fortunately not too long. Here are some of the more common things you cannot claim depreciation for in your investment property: 1. Capital works in a home built prior to the qualifying date 2. Plant and equipment assets in a second hand property purchased after 9th of May 2017 3. The property’s land 4. Demolition 5. Soft landscaping expenses 6. Repairs and maintenance 7. Costs associated with acquiring the property 1. Capital works in a home built prior to the qualifying date As a rule, any residential property in which construction commenced prior to the 15th of September 1987 will not qualify for the capital works allowance (Division 43). Investors with properties built prior to this date should still seek the advice of a Quantity Surveyor, as there are often other assets present which they can claim depreciation for. This might include qualifying plant and equipment assets or renovations completed by a previous owner, for example. 2. Plant and equipment assets in a second hand property purchased after 9th of May 2017 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 brand new properties will still be able to claim depreciation as they were previously. To learn more read BMT’s comprehensive White Paper document at bmtqs.com.au/2017-budget-whitepaper 3. The property’s land You cannot claim depreciation for the land your property is situated on, or its value. 4. Demolition While you can scrap assets and claim depreciation for their remaining value, you cannot claim depreciation on the cost of demolition work at your property. 5. Soft landscaping expenses Soft landscaping refers to landscape work that does not involve construction. So while you can claim depreciation for assets such as a retaining wall, which would have undergone construction, you cannot claim depreciation for grass, shrubs or trees, for example. 6. Repairs and maintenance It’s important that investors know the difference between repairs, maintenance and capital works, so they understand what they can and cannot claim depreciation for. Repairs are considered work completed to fix damage or deterioration of a property, such as replacing part of a damaged fence. Maintenance is considered work completed to prevent deterioration to a property, for example oiling a deck. While you cannot claim depreciation for repairs or maintenance, any costs incurred to repair or maintain a rental property can be claimed as an immediate 100 per cent deduction in the year of the expense. This shouldn’t be confused with a capital improvement, which occurs when the condition or value of an item is enhanced beyond its original state at the time of purchase. This must then be classified as either a capital works deduction and depreciated over time or as plant and equipment depreciation. An example of a capital works deductions could be replacing the kitchen cupboards. If any plant and equipment items are removed and replaced, for example an air conditioner, this will also be considered a capital improvement. You can claim depreciation for capital improvements. 7. Costs associated with acquiring the property This may include legal fees, conveyancing, building and pest inspections fees and stamp duty. You cannot claim depreciation for any of these costs. As you can see, when it comes to depreciation there’s not a lot you cannot claim for. For this reason, it’s important to seek the advice of the specialist Quantity Surveyor who can help you uncover the thousands of assets you can claim depreciation for and maximise all the deductions you’re entitled to as an investor.

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How recent changes to depreciation legislation will impact investors

BMT team — Wed, 06 Dec 2017 04:03:29 +0000

On Tuesday the 9th of May 2017 the government proposed changes to the depreciation of plant and equipment assets in the federal budget. These proposed changes were passed by the Senate on the 15th of November 2017. Shortly after these changes were proposed and following their legislation, a number of property investors contacted BMT Tax Depreciation to discuss how they might be affected. Understandably so, as the last major changes to depreciation legislation were made by the government in the mid 1980’s. The main concerns investors had were about the impact the changes would have on their existing arrangements, future purchases and more widely on the property market. The good news for investors is that properties purchased prior to 7:30pm on the 9th of May 2017 are unaffected, as the previously existing depreciation legislation has been grandfathered. This means that any investor who exchanged contracts prior to this date can continue to claim depreciation deductions as per before. The changes outlined in legislation section two of Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 remove a subsequent owner’s ability to claim a depreciation deduction for previously used plant and equipment assets (the easily removable or mechanical fixtures and fittings) in properties which exchanged contracts after the 9th of May 2017. The legislation also confirms that the proposed changes will only apply to second-hand residential properties. Any investor who purchases a brand new property can continue to claim depreciation for plant and equipment as normal. The changes won’t affect an investor’s ability to claim the capital works component (deductions available for the wear and tear of the building structure and fixed items). Depreciation of plant and equipment for non-residential/commercial properties is also unaffected. The legislation also states that amendments to deductions for plant and equipment assets held in residential properties will not affect those carrying on a business, corporate tax entities, superannuation plans (other than Self-Managed Super Funds) and those who hold a property in a large unit trust. Properties which have been lived in and turned into an investment property by their owners prior to the 1st of July 2017 are not affected. Owners can continue to claim plant and equipment depreciation and capital works deductions. A property owner will not be able to claim depreciation on pre-existing plant and equipment assets within properties which have been lived in as a primary place of residence where the owner decides to rent the property out after the 1st of July 2017. Plant and equipment assets within this scenario are considered previously used. There are scenarios where the values of plant and equipment will be needed. This includes when an asset is scrapped, where there is a partial or full CGT exemption and where the exchange date and settlement date on the sale of the property occur in separate financial years. Depending on the circumstances, a property investor who is unable to claim depreciation on previously used plant and equipment assets due to these amendments should be able to claim a capital loss for the decline in value of the plant and equipment assets. This capital loss should only be able to offset a capital gain and if needed can be carried forward to offset future capital gains. Case study The below scenario explains in detail how depreciation plays a role in assisting a residential property investor to improve the cash return from their property. It also compares the depreciation deductions for the first full financial year on a three year old house purchased for $600,000 before and after the 9th of May 2017. In the example, the owner receives a rental income of $560 per week or a total income of $29,120. Expenses for the property, such as interest, council rates, property management fees, insurance and repairs and maintenance total $41,028. In the first scenario, the owner is able to claim a total depreciation claim of $12,397 from both capital works deductions and plant and equipment depreciation. Using depreciation, this investor is experiencing a weekly cost of $56 per week to hold the property. In the second scenario, as the owner exchanged contracts on the property after the 9th of May 2017, they are only able to claim $6,126 in capital works deductions and will be unable to claim $6,271 in plant and equipment deductions. This reduced claim would result in the investors weekly cost of holding the investment property increasing from $56 to $101, a difference of $45 per week or $2,340 in the first full financial year. It’s important to note that the change will have the same effect on both positive and negative cash flow scenarios. While we believe that generally the integrity measure has merit, the legislative changes go much further than what was necessary to deliver on the government’s intention of stopping subsequent owners from claiming deductions in excess of an asset’s value. The approach outlined in the legislation treats residential property investors differently by extinguishing a property investor’s ability to claim a deductions based upon a transaction. We believe this is caused by gaps in current legislation around establishing a depreciable value for second-hand plant and equipment. 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. Each and every BMT Tax Depreciation Schedule will be tailored to suit an individual’s property investment scenario, ensuring that all deductions are maximised.

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Investors can now have their say on proposed depreciation changes

BMT team — Wed, 19 Jul 2017 02:27:53 +0000

In breaking news, the Australian Government has released draft legislation for public consultation that provides property investors with the opportunity to have their say around proposed changes to depreciation deductions that were announced in this year’s Federal Budget. According to Bradley Beer, the Chief Executive Officer of BMT Tax Depreciation, the integrity measures in the exposure draft released by the government provide further clarification for property investors around the proposed new rules and investors would be wise to closely review the documents and/or speak to a qualified expert before purchasing an investment property. In the exposure draft, Treasury Laws Amendment (Housing Tax Integrity) Bill 2017: Limiting deductions for plant and equipment in residential premises and travel expenditure for residential rental property, many questions which were left unanswered by investors have now been addressed. The Bill suggests that investors who purchase new properties and complete substantial renovations or purchase a property off the plan, will not be affected by the changes. However, and as foreshadowed, investors who have purchased second hand residential properties after the 9th May 2017 will only be able to claim depreciation for plant and equipment assets that they spend money on themselves. In the past, this group has been able to depreciate such assets in properties they purchased regardless of whether they paid for them or not. “While the Government’s intention has merit, BMT believes that this change may unfairly prejudice investors of second hand properties,” said Mr Beer. “BMT encourages people in this group to review the legislation and have their say through the appropriate channel,” said Mr Beer. The Government also advises that amendments to deductions for plant and equipment assets held in residential properties will not affect those carrying on a business, corporate tax entities and those who hold a property in a large unit trust. “This means that those who operate a business from home will still be able to continue claiming plant and equipment depreciation on assets which are used to produce an income for the business,” said Mr Beer. “Owners of second hand residential properties will still be able to claim a capital works deduction for the structural element of a building including fixed assets, if the building was constructed after 1987.” “This capital works deduction makes up the largest part of a property investor’s depreciation claim,” said Mr Beer. All investors who exchanged properties before 7:30pm on the 9th of May this year will still be able to claim depreciation as normal. Public consultation regarding the new measures for plant and equipment depreciation, and changes to claims for travel expenditure, is open until the 10th of August 2017 for property investors who would like to have their say.

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What do the proposed changes to depreciation mean for you?

BMT team — Wed, 31 May 2017 07:14:35 +0000

Recently the federal government announced some proposed changes relating to plant and equipment deductions. Since then we’ve had time to review how this could affect residential property investors. Although we are not expecting the legislation to be finalised anytime soon, we have been talking with government with the aim of developing fair policy which covers all the necessary factors. Many investors who have contacted us have asked how they will be affected. The proposed changes won’t have any effect on properties that are already owned. It will only affect owners who have exchanged contracts on an investment property after the 9th of May 2017. Below are the key points to answer the questions investors have relating to the proposed changes. Because the legislation is yet to be finalised, it is important to note that further changes may still take place. Contents: What changes have been proposed? What is plant and equipment? When will the changes take place? Who will be affected by this change? How will these investors be affected? Who won’t be affected by these proposed changes? Depreciation scenario – before and after 9th of May What changes have been proposed? Subsequent owners (those who purchase a second hand property) who exchange contracts after the 9th of May 2017 will not be able to claim depreciation on existing plant and equipment assets Although there is nothing specific mentioned about new properties, we expect that investors will be able to depreciate new plant and equipment assets within a new property as they have been previously. This will continue as normal Any additional assets added to a property can be depreciated as normal. Investors will still be eligible to claim qualifying capital works deductions, which are the deductions available on the structure of the building. This includes any additional capital works carried out by themselves or a previous owner. The capital works deduction is available on properties that commenced construction after the 16th of September 1987 The budget notes advise that existing investments will be grandfathered. This means that any investor who exchanged contracts prior to the 9th of May 2017 can still claim plant and equipment depreciation per normal What is plant and equipment? These are the easily removable or mechanical assets found within an investment property Some examples include air conditioners, hot water systems, smoke alarms, garbage bins, blinds and curtains The Australian Taxation Office provides individual effective lives for plant and equipment which can be used to calculate the rate of depreciation over time When will the changes take place? The proposed new legislation was expected to be passed from the 1st of July 2017. However, the legislation is yet to be passed and the government has provided investors and relevant parties with the opportunity to have their say by making a submission until the 10th of August 2017. Who will be affected by this change? Property investors who exchanged contracts to purchase a second hand residential property after 7:30pm on the 9th of May 2017 How will these investors be affected? These investors will only be able to claim plant and equipment depreciation on the assets they purchase and add to the property themselves Investors who purchase a second hand property should still contact a specialist Quantity Surveyor to discuss the deductions they can claim for qualifying capital works deductions Who won’t be affected by these proposed changes? Owners of brand new residential properties who exchanged contracts both before and after the 9th of May Residential property investors who exchanged contracts prior to the 9th of May 2017 The amendments don’t affect deductions that arise in the course of carrying on a business. This means commercial property owners and their tenants can continue to use the existing rules. Corporate tax entities, superannuation plans (other than Self-managed Super Funds) and large unit trusts are also unaffected Home owners are unaffected as only income producing properties will be impacted. Clarity is needed around those who decide to turn their primary place of residence into an investment property, especially those who purchase their property prior to the 9th of May 2017 and they decide later to rent it out Depreciation scenario – before and after 9th of May The following tables show the deductions an investor would receive for both a three year old and a ten year old residential property purchased for $600,000. They examine the deductions an investor who exchanged contracts prior to the 9th of May could claim compared with the likely depreciation deductions they could claim if they exchanged contracts after the 9th of May under the proposed new legislation.

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Property investors to lose out from proposed budget changes

BMT team — Thu, 11 May 2017 06:23:46 +0000

The 2017 Federal Budget, handed down by Treasurer Scott Morrison on Tuesday night, 9th May at 7:30pm AEST includes proposed changes which will affect residential property investors Australia-wide. The Australian Tax Office (ATO) allows owners of income producing property to claim depreciation deductions for the wear and tear that occurs to a building’s structure and the plant and equipment assets within. The proposed changes relate to the depreciation of plant and equipment assets and the eligibility to claim this deduction. Currently, investors are eligible to claim qualifying plant and equipment depreciation on assets found in an investment property they purchase, even if they were installed by a previous owner. “Under the new rules which are yet to be legislated by Parliament, investors will be able to depreciate new plant and equipment assets and items they add to their property, however subsequent owners will not be able to claim depreciation on existing plant and equipment assets,” said the Chief Executive Officer of BMT Tax Depreciation, Bradley Beer. “This change will have a major impact on investors, essentially reducing the annual deductions they can claim therefore reducing their cash return each year. This could lead to investors being in a tighter financial position and may discourage future investors from purchasing a second hand residential property,” said Mr Beer. “It is our understanding at this stage that if the property is new, they will be able to continue to depreciate plant and equipment as they were previously. We are seeking further clarification on this,” said Mr Beer. Investors will still be able to claim capital works deductions also known as building write off, including any additional capital works carried out by a previous owner. The budget notes were clear that existing investments will be grandfathered. This means that anyone who has purchased a property up until the 9th of May 2017 will be able to claim depreciation as per normal. If a property investor exchanges contracts to purchase a second hand property after 7:30pm on the 9th May, there could be different depreciation rules applicable to their scenario. “We are currently speaking with government to further understand the intricacies relating to the budget notes and the proposed changes to depreciation of plant and equipment assets,” said Mr Beer. This article was originally published as a media release at www.bmtqs.com.au/news-media/media-releases/property-investors-lose-out-budget-changes

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Negative gearing: the facts for property investors

Bradley Beer — Tue, 14 Jun 2016 23:22:19 +0000

Over the past few months most of you would have read or heard about negative gearing in the media. There has been heated discussion both in favour and against current negative gearing policy, as well as examination of the potential risks and benefits for investors. Although we would prefer to remain apolitical, we at BMT are concerned about the current proposals to make changes to property tax concessions and the potential impact on our clients. We are therefore including some information to help you to understand the impact of the different policies. What is negative gearing? Policy matters The risks What is negative gearing? As you know, when you invest in a property, the cash flow position will depend on the income earned and outgoing expenses such as interest repayments, council rates, insurance, property management fees, repairs and maintenance or other miscellaneous costs. In a situation where an investor is receiving a higher rental return than the outgoing expenses, the property will have positive cash flow and the owner will pay tax on this income earned at their top marginal tax rate. By contrast, a negatively geared property has a rental income which is less than the outgoing expenses including deductible losses. Therefore the property investor is making a cash loss on their investment. Currently, income producing property owners are entitled to offset these losses against other income earned, including their wage or salary. By offsetting these losses, investors reduce their taxable income and will reduce the amount of tax they need to pay as partial compensation for making these losses. The ability to claim the losses that are over and above the income generated against wage or salary income is only allowable because of negative gearing legislation. Any proposed restrictions on negative gearing will be reducing a property investor’s ability to claim a tax deduction for these losses. Recent data from the Australian Taxation Office (ATO) released for the 2013-2014 financial year shows that of the 2,842,139 Australians who receive a rental income for their properties, 1,691,355 do so at a loss. This means that 59 per cent of Australians who own investment properties are negatively geared. Policy matters Each of the parties have outlined their position in regards to negative gearing in the lead up to the 2nd of July 2016 federal election. Below is a summary: Labor plan to restrict negative gearing tax concessions from July 2017, next year. Negative gearing will no longer be available on any second hand properties purchased. At this stage, no changes are planned for investors who purchase brand new properties.Capital Gains Tax (CGT) exemptions will also be changed under Labor. Currently, individuals or small business owners who hold an income producing property or other asset for more than twelve months receive a 50 per cent discount from CGT. The change proposed by Labor will mean that investors will only be able to claim a 25 per cent CGT discount from July 2017. An incoming Labor Government will be in a position to enact their policy as they are very likely to have the support of the Greens in the Senate. Labor’s policy would not be retrospective The Greens plan to get rid of negative gearing tax concessions altogether. They also plan to reduce CGT discounts by 10 per cent each year from the 1st of July 2016. From the 1st of July 2020 there will be no CGT discount at all. The Greens are likely to seek support for their more restrictive policy from an incoming Labor Government as part of negotiations in the Senate The Coalition has advised they will not be making any changes to current negative gearing concessions or to CGT exemptions. Negative gearing and CGT exemptions will remain in its current form under a returned Liberal/National Government. The risks Should the current Labor or Greens proposal be enacted, commentators predict that property prices will fall as a natural consequence of property investors largely deserting the marketplace. This is a real concern for all property owners. Predictions vary from between 2 per cent price fall (Grattan Institute) to up to 30 per cent fall (Bill Moss). Obviously price declines will vary by geographical area and will be largely determined by the balance between supply and demand. Education and proper understanding is key. We encourage you to review the policies in more detail and make an educated decision on polling day. Should you have other questions, we’d be happy to help as best we can. Authorised by Bradley Beer, BMT Tax Depreciation Level 33, 264 George Street, Sydney, NSW 2000.

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