» Buying investment property

6 tax benefits of owning an investment property

BMT team — Fri, 26 Apr 2024 01:37:43 +0000

There are significant tax benefits of owning an investment property, even if a property is not producing an immediate profit. Here are 6 tax benefits of investment properties all investors and property managers need to know about: Negative gearing Capital gains tax exemptions Claiming interest on your mortgage Equity loan withdrawals are tax free Small expenses Depreciation Negative gearing An investment property is negatively geared when the return, or rental income is less than the property’s expenses. Essentially, this means the property is making a loss and the cash flow is negative. This is not necessarily a bad thing; it actually can create a substantial tax benefit because the property owner can claim the loss as a tax deduction to offset their taxable income, meaning they pay less tax. If the rental payments are not covering the mortgage payments and other outgoing fees, the property owner can claim this loss as a tax deduction. Read more: Uncover additional benefits of negative gearing property Capital Gains Tax exemptions Capital Gains Tax (CGT) is the tax paid on profits from selling assets. When a property is sold, there is usually a gain or a loss. In the event of a gain, the seller needs to report this as income. The gain will then be added to their annual taxable income and the total amount will be taxed at the individual’s tax rate. There are discounts available if the individual has owned the asset for more than twelve months. A property owner is entitled to a fifty per cent discount on CGT if they have held the property in their name for more than twelve months, from the date of signing the contract. If a property is sold in a period shorter than twelve months, owners will have to pay full capital gains tax. This tax rate is dependent on the individual’s income. It’s important to note your main residence is generally exempt from CGT due to the ‘main residence exemption’. A home is classed as a main residence by the Australian Taxation Office (ATO) if it has been the home of you, your partner, or other dependants for the whole period you have owned it, has not been used to produce income, or is on land two hectares or less. There are other allowances for specific situations such as partial discounts for individuals who are renting out part of their home or using part of their home for an income-producing business. In these cases, CGT would be exempt for their part of the living area within the property. Claiming interest on your mortgage As an investment property owner, you can claim the interest charged on your investment property loan as a tax deduction. The interest is a cost obtained from money being made through the property. This can only be claimed if the property is being used to earn an income, owner occupied properties are not eligible for any tax deductions. Equity loan withdrawals are tax free If your property increases in value but you don’t want to sell, you can withdraw a portion of money through a home equity loan, perhaps for another property or other investment opportunities. The benefit of this is you don’t pay tax on these withdrawals. This is because you haven’t increased your financial position through deriving income, you are drawing out equity from the property in the form of a loan rather than selling to release the equity and generating a capital gain. It’s key to remember that the interest payments will only be deductible if used for other investment purposes. It’s important to always speak to a financial advisor before making big decisions. Small expenses There are many small deductible expenses which all property investors should be claiming. These could add up to thousands of dollars. Things like land tax, strata fees and council rates can be claimed as a deduction. Further examples of available deductions include insurance, legal expenses and bookkeeping costs. Deductable expenses can also be available to claim in cases where part of the property is being rented out or used to produce an income. Repairs and maintenance can be claimed immediately if they are directly related to wear and tear. However, if assets are solely replaced through renovations to increase the value of the property, these will need to be claimed as a capital works or capital allowance deduction. According to the Australian Taxation Office (ATO), repairs are considered work completed to fix damage or deterioration of a property, such as replacing part of a damaged fence. Maintenance is work completed to prevent damage or deterioration of an asset. For example, oiling a deck is considered maintenance as it helps to preserve the quality of the property and prevent future corrosion. All costs incurred to repair or maintain your investment property can usually be claimed as an immediate tax deduction in the year of the expense. However, the ATO specifies that initial repairs for damage that existed when the property was purchased are not immediately deductible. Instead these costs are used to work out your capital gain or capital loss when you sell the property. Depreciation As a building gets older, its structure and the assets contained within it wear out – they depreciate. The Australian Taxation Office (ATO) allows owners of income producing properties to claim this depreciation as a tax deduction. There are two different types of depreciation you can claim. Capital works (division 43) deductions can be claimed for the wear and tear that occurs to a building’s structure and items permanently fixed to the property such as built-in kitchen cupboards, clothes lines, and fences. Then there is plant and equipment depreciation (division 40) on items which are easily removable or mechanical in nature such as air-conditioning units, security systems and light fittings. An investment property owner will need a tax depreciation schedule to claim these deductions. A tax depreciation schedule outlines all available property tax deductions you can claim, and your accountant will then use it to lodge […]

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2023 Property Market Year in Review

BMT team — Mon, 20 Nov 2023 22:47:43 +0000

Despite ongoing interest rate hikes, high inflation and a subsequent ease in consumer spending, the residential property market has shown resilience with a 7.0% growth rate in the year to November 2023. As at the end of November, residential real estate constituted $10.3 trillion of Australia’s wealth, with superannuation at $3.5 trillion, Australian listed stocks at $2.8 trillion, and commercial real estate at $1.3 trillion following closely behind. RESIDENTIAL AND COMMERCIAL PROPERTY VALUES There has been renewed growth in the capital cities property market this year. Brisbane properties have shown growth at an impressive 10.7% over the past year and dwelling values are currently at a record high. Perth has taken a definitive lead at a growth rate of 13.5%, followed by Adelaide which has shown a slowdown from a significant 13.4% in November 2022 in comparison with a growth rate of 7.6% in November 2023. In Sydney, dwelling values increased by 10.2% over the past year, but are still below the record highs of January 2022 and Melbourne showed a respectable 3.0% growth over the past year. Canberra, Darwin and Hobart have struggled to get above the line this year with values falling by -0.3% in Canberra, -1.5% in Darwin and -3.0% in Hobart respectively. The rise in the value of regional property has also slowed across the country showing a more moderate growth rate of 3.4% as of November 2023 compared to the 10.1% growth rate seen at the same time last year, suggesting a potential downtrend in the tree change and a return to city life for many. PROPERTY SALES Most residential homes across Australia take approximately 32 days to sell, with 10.2% more properties on the market across Australia, than the same time a year ago. Perth has once again broken the trend, selling within less than 12 days, highlighting the lack of availability and rise in demand in the already heavily burdened property market in Western Australia. RENTAL PROPERTY MARKET As always, rental rates in the capital cities have shown significant growth at 9.7%, followed by a much more muted growth rate of 4.1% in regional areas. Rental rates across Australia as a whole have averaged 8.1%. According to CoreLogic, there has been a slight compression in gross rent yields nationally to 3.69%, which is down from 3.70% the previous month. LOAN APPROVALS AND CREDIT Covid era fixed rates expired this year, forcing many Australians into mortgage stress, spending well above the recommended 30% of their income on mortgage payments. In 2020 the average three – year fixed rate investor loan was at 2.2%. For some, this has now increased to a comparable variable rate loan of up to 7.21% with the Big Four banks, averaging 6.0% for owner occupiers and 6.49% for investors. Lending standards tightened for all residential and commercial real estate loan categories, but secured, tenanted investors are still positively favored by banks with investor finance comprising 35.6% of new mortgage lending through October. This share of investment lending was highest across NSW at 40.4% and is trending higher than the historic average at the national level. Most owner-occupier loans granted this year were first time buyers, comprising 28.9% of new owner occupier finance, which is well above the decade average of 24.2%. indicating a positive uptake of government schemes for this market segment. In terms of the number of dwellings approved for construction, both detached home – and unit approvals trended well below the historic 10-year average, with units trending even lower than detached homes. INTEREST RATES The 25-basis point Melbourne Cup Day rate hike has taken no one by surprise, leaving 1 in 4 lenders now with loans greater than their incomes according to the Reserve Bank of Australia. The number of Australians defaulting on their home loans, now surpasses the mortgage stress peaks of the Global Financial Crisis, however, returns on interest bearing investments, such as term deposits, have been favorable. Many mortgage customers have also found a way forward by refinancing their loans at more competitive rates. BMT NEWS As quantity surveyors, we have been steadfast in our approach to depreciation, believing that a physical onsite inspection will ensure an accurate and reliable depreciation schedule that will earn the owner the highest possible tax deductions. In 2023 our stance was validated by the Australian Institute of Quantity Surveyors, whose principal mission it is to establish and uphold professional standards at all times, maintain uniformity in procedures, support industry education, and foster public faith in cost certainty and the quantity surveying profession overall. Since opening its doors in 1997, BMT Tax Depreciation has completed more than 900 000 tax depreciation schedules to date, averaging first full financial year deductions of almost $9 000,00 in all residential properties and more than $15 000,00 in new properties, once again cementing our position as market leaders in tax depreciation. To maximise property tax depreciation deductions on your property, Request a Quote from us. The information in this article is sourced from CoreLogic and the Reserve Bank of Australia. This article is general in nature and should not be taken as advice or a guaranteed outcome.

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Commercial property repairs and maintenance – who’s responsible?

BMT team — Fri, 08 Sep 2023 01:52:46 +0000

Commercial property repairs and maintenance is typically shared between the landlord and the tenant. However, the specific obligations and responsibilities can vary depending on the terms of the lease and the applicable state or territory legislation. In this article, we outline: Definitions of repairs, maintenance and capital improvements Landlord’s responsibilities Tenant’s responsibilities Professional property management Claiming deductions for repairs and maintenance Definitions of repairs, maintenance and capital improvements According to the Australian Taxation Office (ATO), repairs are completed to fix damage or deterioration of a property, such as replacing part of a damaged fence. Maintenance, on the other hand, is completed to prevent damage or deterioration of an asset. For example, re-painting a wall the same colour as it was previously, is classified as maintenance. Any works that improve a property beyond its original state are classed as capital improvements. According to TR 97/23, an ‘improvement ‘provides a greater efficiency of function in the property – usually in some existing function. For instance, extending a building is considered a capital improvement. Landlords are typically responsible for structural repairs, pre-existing issues and common areas while tenants are typically responsible for routine maintenance and tenant-caused damage. The following outlines which party is commonly responsible for specific repairs and maintenance. Landlord’s responsibilities The following is typically the responsibility of the landlord: • Structural repairs: – Ensuring the structural integrity of the property, including the foundation, walls, roof and major systems like plumbing and electrical. • Pre-existing issues: – Addressing pre-existing problems or defects which existed before the tenant occupied the property. • Essential services: – Ensuring essential services such as water, gas, electricity and heating/cooling systems are in working order. • Common areas: – Repairing and maintaining areas that are part of a larger complex or have shared areas. Tenant’s responsibilities The following is typically the responsibility of the tenant. • Routine maintenance: – Day-to-day tasks including changing light bulbs, replacing batteries in smoke alarms and general cleaning. • Tenant-caused damage: – Damages caused beyond natural wear and tear such as holes in walls or broken windows, are the responsibility of the tenant. • Reporting repairs: – Tenants should promptly report any necessary repairs or maintenance issues to the landlord or property manager, depending on their agreement. It’s important to note that these responsibilities can be modified by the terms of the lease agreement, so it’s essential for both parties to review the agreement and understand their respective obligations. Additionally, state or territory-specific tenancy legislation may impose additional requirements or guidelines for repairs and maintenance, so it’s advisable to consult the relevant local authority or seek legal advice for precise information based on your location. Professional property management to avoid disputes Commercial property owners often don’t have the time, expertise, or inclination to handle repairs and maintenance directly, in most scenarios they opt to hire professional property management companies. Property managers play a crucial role in overseeing and coordinating repairs, maintenance, and vendor services on behalf of the property owner. They ensure that routine inspections are conducted, maintenance issues are promptly addressed, and the property remains compliant with relevant regulations. Claiming deductions for repairs and maintenance Fortunately, for commercial property owners and tenants, deductions are available for commercial property repairs and maintenance. Repairs and maintenance are immediately deductible in the year the cost incurred while capital improvements are depreciated over time depending on the effective life of the asset or the construction commencement date and the industry in which the building is used. Claiming deductions for commercial repairs and maintenance allows property owners and tenants to recoup often unavoidable expenses throughout the year. Claiming deductions lowers the taxable income of the landlord and tenant, which in turn, improves cash flow and reduces taxation liabilities. By effectively managing repairs, maintenance, and depreciation, property owners can optimise their investments and achieve long-term success in the commercial real estate market. Commercial property owners and tenants should consult with a quantity surveyor that specialises in depreciation, such as BMT Tax Depreciation, to fully understand the specific regulations and requirements related to claiming depreciation and repairs and maintenance to ensure compliance and maximised deductions. To learn more about the deductions available in commercial property repairs and maintenance, get in touch with BMT on 1300 728 726 or Request a Quote.

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Commercial property tax deductions for owners

BMT team — Sun, 30 Jul 2023 16:30:48 +0000

Navigating the world of commercial property investment isn’t always easy. Investors must consider economic factors like population growth and demand to work out if it’s worthwhile investing in a commercial property. As with residential investment, there are many ongoing expenses involved with owning a commercial property which can sometimes deter investors from making the leap into commercial property investment. It is important to be aware of the deductions available to investors which make holding a property much more affordable. Here are some common commercial property tax deductions available to investors. Contents Maintenance and management costs Depreciation Depreciation: capital works Depreciation: plant and equipment Renovations BMT are the commercial depreciation experts Maintenance and management costs According to legislation governed by the Australian Taxation Office (ATO), commercial property owners can claim deductions for related expenses for the period their properties are rented or available for rent. Owners can claim an immediate deduction for any expenses relating to the maintenance or management of their property. This may include things like interest on loan repayments, leasing agent fees, council rates, air conditioning repairs, water leaks, cracked tiling or replacing smoke alarms. Depreciation Depreciation is a lucrative deduction available to owners of income-producing properties. As a building and its contained assets age, they depreciate in value. ATO-governed legislation allows owners of investment properties to claim a tax deduction for this wear and tear called depreciation. Owners can claim under two different categories, capital works or division 43 and plant and equipment or division 40. Depreciation: capital works Capital works is the deduction for the building’s structure and any permanently fixed assets. It is commonly referred to as building write-off and can be claimed at either 2.5 per cent over forty years or 4 per cent over twenty five years depending on the property’s construction commencement date. For more information, read BMT Tax Depreciation’s tax depreciation overview. Commercial properties qualify for capital works deductions if construction started after the 20th of July 1982. Examples of qualifying capital works assets include roofs, bricks, mortar, wiring, walls, windows, flooring and other permanently fixed assets. Depreciation: plant and equipment Owners can also claim for plant and equipment assets they own or those which are left behind by tenants. Plant and equipment refers to assets that can be easily removed from the property and includes items like rangehoods, ovens, carpets and air conditioning. Plant and equipment depreciation is calculated based on each asset’s individual effective life as determined by the ATO. Effective life and depreciation rates for commercial and residential assets can be found on BMT Tax Depreciation’s Rate Finder tool. Renovations Commercial property owners can claim depreciation for renovations on their properties including those completed by previous owners. This includes things which may not be so obvious, like updated plumbing, water-proofing and wiring. For renovations of a structural nature to qualify for capital works deductions, they must have commenced within the qualifying dates set by the ATO. BMT are the commercial depreciation experts To maximise the depreciation claim for your commercial investment property, it’s important to engage specialist Quantity Surveyors such as BMT for a tax depreciation schedule. BMT is the largest and most successful tax depreciation company in Australia with extensive experience in creating comprehensive, ATO-compliant schedules. BMT has prepared tax depreciation schedules for commercial properties ranging from primary production, manufacturing, retail centres, mining, office towers, medical centres, traveller accommodation and many more. Find our more about BMT Tax Depreciation’s extensive experience with our Commercial Capability Statement. If you’re considering commercial property investment, contact BMT on 1300 728 726. Alternatively, if you need a quote for your existing commercial property, request a quote here.

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What to be aware of when buying a property with an SMSF

BMT team — Wed, 19 Apr 2023 01:30:36 +0000

Did you know it’s possible to buy an investment property through a self-managed super fund (SMSF)? An SMSF is a private superannuation fund that can have between one and six members. All members are responsible for decisions made about the fund and compliance with the relevant legislation. It’s common for SMSF trustees to consider purchasing investment property through their fund. However, the process is often complex, particularly when it comes to borrowing money. Before buying property through your SMSF, you must be aware of the specific rules and regulations that apply. In this article we will look at: Buying investment property with an SMSF Borrowing money when buying property with an SMSF Recent laws affecting SMSFs Can you claim depreciation for an SMSF investment property? Buying investment property with an SMSF In order to buy property through an SMSF, you must abide by the following requirements. The property must: Meet the ‘sole purpose test’ of solely providing retirement benefits to fund members Not be acquired from a related party of a fund member Not be lived in by a fund member or any fund members’ family Not be rented by a fund member or any fund members’ family. While a property cannot be rented or lived in by a fund member or their relatives, most SMSFs are entitled to purchase their personal business’s premise, allowing the business to pay rent directly to their SMSF at the market rate. This is particularly appealing to small business owners. Compared to other asset types, investing in property often attracts higher fees and charges which can reduce your super balance. It’s important to be aware of any fees including legal costs, stamp duty, property management expenses and bank fees before signing up. Borrowing money when buying property with an SMSF It’s possible to borrow money when purchasing property through an SMSF, however it must be done under strict conditions referred to as a limited recourse borrowing arrangement (LRBA). An LRBA involves an SMSF member taking out a loan to purchase a single asset, in this case a property, which is held in a separate trust. Any investment returns earned from the property go to the fund. If the SMSF defaults on the loan, no other assets within the SMSF are affected. A personal guarantee can be required so the individual’s assets could be affected. The SMSF generally needs to have a minimum balance of $180,000 to be able to purchase a property and an annual contribution of at least $15,000. In addition, most lenders require an SMSF to have at least 30 per cent of the value of the property as a deposit and often charge a higher rate of interest. As borrowing to invest can sometimes be considered high risk, it’s best to discuss your borrowing options and LRBA with a trusted financial adviser. Recent laws affecting SMSFs Concessional contributions are the funds that go into your super account from your before-tax income. The concessional contribution limit is now set at $27,500 , while the after-tax or non-concessional limit is $110,000 . Individuals can make extra concessional contributions above the $27,500 limit if they have haven’t used the entire concessional cap amounts from previous years. To use an unused cap, the individual’s total super balance must be less than $500,000 at the end of 30 June the previous financial year and have made concessional contributions in the financial year that exceeded the individual’s general concessional contributions cap. Individuals can re-contribute amounts they withdrew between 1 July 2021 and 30 June 2020 under the COVID-19 early release of super program without them counting towards their non-concessional contributions cap. The ‘bring-forward rule’ allows a trustee to contribute up to three years’ worth of non-concessional contributions in one year. From the 2022–23 financial year members who are under 75 may be able to access a bring-forward arrangement as outlined in the table below. The way the ATO calculates a trustee’s total super balance (TSB) has also changed. In certain circumstances, an individual’s LBRA amount will be factored into their TSB if the loan contract was entered into on or after 1 July 2018. This will apply if: The LBRA is with an associate (relative, other member of SMSF, partner or company) of the fund. All members of the fund whose interest is supported by the asset purchased using the loan must include the LBRA in their TSB calculations. A member of the fund met a condition of release with a nil cashing restriction. If your TSB is greater than $1.7 million from 2021-22, you can no longer make non-concessional contributions. The ATO also made changes to the way an SMSF can buy assets such as property. A property purchased through an SMSF must be done on an ‘arm’s-length basis’, meaning that a transaction made by the fund must reflect the true market of the asset. Any income made from that asset must also reflect the true market rate of return. For example, an SMSF trustee cannot purchase a house to be rented by their son at a lower rental rate. If there is not adequate documentation to prove the money provided by a related party was actually borrowed, the amount provided by the related party might be considered to be a contribution received by the fund. This could lead to significant tax consequences if it results in a contributions cap being exceeded. Can you claim depreciation for an SMSF investment property? There are tax implications when the trustees of an SMSF choose to invest in real estate. As with any other property investment, SMSF trustees who invest in real estate are entitled to claim capital works deductions for the wear and tear of a building’s structure as well as depreciation for any eligible plant and equipment items. It’s important that SMSF trustees take advantage of the additional funds available via a depreciation claim. BMT Tax Depreciation can prepare depreciation schedules for trustees with an investment property to help maximise their claims. […]

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PropCalc: The investment property calculator for all investors

BMT team — Tue, 22 Nov 2022 05:11:31 +0000

The first step towards owning an investment property is making sure you’re in the financial position to do so. The costs associated with purchasing and maintaining an investment property aren’t always clear nor is the potential cash flow outcome. BMT Tax Depreciation’s investment property calculator PropCalc was developed to eliminate the guesswork from property investment. PropCalc estimates the likely costs of owning any investment property and models your cash flow, even before a purchase is made. In this article we will explore: What PropCalc does How PropCalc How investors can benefit from PropCalc What PropCalc does PropCalc can help both prospective and existing residential property investors estimate the cash flow position of any investment property. The calculator estimates the after-tax holding costs and property’s gearing level based on the investor’s financial scenario. PropCalc takes property related tax deductions into consideration and allows investors to compare multiple properties side-by-side to see which would be best suited for their financial situation. Users can access PropCalc through MyBMT, a portal for property management featuring schedules and policies, record keeping, PropCalc and a research and insights portal which displays planning applications and census data, providing a better indication of future capital growth and vacancy rates. How PropCalc works PropCalc uses property-specific data to give a realistic impression of cash flow by calculating the difference between rental income and expenses, including tax deductions available for expenses. Simply enter the address of the property and PropCalc will pre-fill with reliable estimated data which can then be adjusted for various scenarios. The calculator will include deposit, mortgage insurance, stamp duty, legal fees, interest, body corporate fees, insurance, council rates, water rates, property management fees, repairs and maintenance estimates and depreciation. Once the information is filled out a report will be displayed with property images and estimated figures including holding costs, gearing level and rental yield. You can also see the holding costs in a weekly, fortnightly, monthly or yearly period. Once the report is complete you can go back and change any figures if the scenario changes. PropCalc generates property reports, allowing you to save and compare multiple properties online and through the app. How can investors benefit from PropCalc? PropCalc gives users the advantage of knowing their likely out of pocket cash flow position prior to purchase. This information can help them explore property buying options and make informed decisions on whether a property is suitable without any costs or commitment. PropCalc is available as an app so that properties can be compared on-the-go at property inspections. After inspecting the property, users can add images and enter in notes to have them included in the report. Or the report can be downloaded as a PDF and taken when inspecting the property. Over 40,000 people are already enjoying the benefits of PropCalc. Join them by adding this to your investment property tool kit. Download the app on Google Play, or the App Store or visit bmtqs.com.au/propcalc today.

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Discover the tax benefits available to granny flats owners

BMT team — Mon, 26 Sep 2022 02:18:41 +0000

For many years granny flats have been an increasingly popular way to invest in property. Granny flats can boost a property’s value substantially and increase rental yields. Granny flats (also known as secondary dwellings) are self-contained units that have a kitchen or kitchenette, bathroom, bedrooms, a laundry and living area. They’re popular for older family who require ongoing support, as Airbnb’s (more so if the location is in a tourist area), and for people simply wanting to boost their cash flow. Some people are even moving into their granny flat and renting out their main home to maximise earning potential. In this article we explore the benefits of granny flats, each state’s regulations and how depreciation deductions can maximise an investment return. Tax benefits of a granny flat State regulations Maximise investment return with depreciation Tax benefits of a granny flat There are many benefits to granny flats including earning a rental income, quick returns, access to tax benefits, growth in property value, and space for family growth. The cost of constructing a granny flat is cheaper and can yield quicker returns than alternative residential investment properties such as a house or an apartment. The price of constructing a granny flat can be anywhere from $80 000 up to $300 000 plus and construction is usually scheduled between twelve to fourteen weeks from start to final handover. Prices depend on size, fixtures and fittings, the land it’s built on (for example if the land is on a slope construction may cost more) and existing services (if the granny flat is further away from your power and sewerage system it may cost more to connect them). This doesn’t include council or application fees. Some councils require fees and contributions be paid before building which go toward the additional services and infrastructure required as a result of a development. Because a granny flat is income producing there are a variety of tax benefits available including depreciation] and claiming costs such as rates, insurance, interest rates, repairs and maintenance. A typical granny flat can produce a rental income of anywhere from $250 -$500 a week depending on location, size and level of finish. Renting out a granny flat doesn’t only improve cash flow but allows owners to pay off their mortgage quicker. It’s important to note that while there are many benefits to granny flats it doesn’t guarantee the house will grow in value and can potentially reduce the buyer pool when selling as some people don’t want a granny flat on the property. There are also possible capital gain tax implications to consider. State regulations Each state has varying rules to how granny flats can be used, including if they are permitted to produce an income, who can occupy them and where they can be constructed on the property. In New South Wales granny flats can be built without council approval and can be occupied by anyone. The property can’t be smaller than 450 square metres, must maintain a three-metre setback from the rear of the property, a 0.9-metre setback from the side boundaries and can’t exceed a maximum internal space of sixty square metres. They can’t exceed the maximum building height of 8.3 metres, must maintain a three-metre distance from any existing tress over four metres tall, can’t be built over an easement and the property must have residential zoning. In the Australian Capital Territory (ACT) granny flats can be built and occupied by anyone with council approval. The property must be at least 500 square metres, the granny flat can’t be smaller than forty square metres and no larger than ninety square metres, in a residential zone, compliant with the total plot ration for the block and compliant with the Australian Standard AS 4299 Adaptable Housing Class (Class C). They must be a water sensitive urban design, compatible with exterior building materials of existing buildings in the neighborhood and compliant with setbacks. Granny flats in the ACT must have one parking space which cannot be in the ‘front zone’, clear unobstructed pedestrian access, reasonable levels of privacy and private open space for tenants. Under emergency planning changes to help alleviate the housing crisis granny flats in Queensland can now be occupied by anyone. Previously in order to rent out a granny flat to any non immediate family member council approval was required. Without council approval granny flats can’t be larger than eighty square metres and built no further than twenty metres from the main house. Two storey granny flats can’t be taller than 9.5 metres, the rear and side walls must not exceed 7.5 metres, the highest point of the roof cannot be greater than thirty degrees on small lots and can only be built in low or medium density zones. Three storey granny flats can’t be taller than 11.5 metres, the rear and side walls must not exceed 9.5 metres and the maximum point on the top of the roof cannot be greater than thirty degrees. Granny flats must have one parking space (additional to those for the main house) and a separate entrance. In Western Australia only one granny flat can be built on each lot, the lot size needs to be a minimum of 450 square metres (unless your local council states otherwise) and a maximum floor area of seventy square metres (some councils may state up to 100 square metres). Approval from the local council is required if the granny flat will be occupied by a person outside of the household. Once a granny flat is built the land cannot be subdivided (unless your local council states otherwise). The regulations on granny flats in Tasmania is complex as it varies between councils. Developing land for residential purposes requires approval from your local council and granny flats must have a maximum floor size of 60 square metres or no more than thirty per cent of the total area of the main home. All building and plumbing works must comply with the standards of the National Construction Code […]

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Why you need a site inspection for a tax depreciation schedule

BMT team — Wed, 15 Jun 2022 23:35:41 +0000

Most of us wouldn’t purchase a car before seeing it or exchange unconditional contracts for a property without a building and pest inspection. We believe the same applies to site inspections when preparing a tax depreciation schedule. Property depreciation can save you thousands, sometimes tens of thousands, each financial year. A tax depreciation schedule holds the key to unlocking this cash flow. Your schedule lasts the lifetime of the property, so it’s important to get it right from the very beginning. In this article we will explore: What is a depreciation site inspection and what does it involve Importance of noticing improvements during a site inspection Maximising claims while maintaining compliance Support from the industry Site inspections make it easier for you Key points A site inspection ensures your depreciation claims are maximised and are compliant Hard-to-find assets are always found during a site inspection Both the AIQS and NTAA support the requirement of site inspections. What is a depreciation site inspection and what does it involve? A site inspection for depreciation purposes is different to other inspections like building or open houses. To complete a site inspection, a specialist needs to enter the property to find all the items that can be depreciated. During the inspection, you will see them documenting the property’s items, taking measurements and photographs and analysing the workmanship. An inspection is especially important if your property was purchased second hand. The site inspector will make note of all plant and equipment assets in the property. Although some of these assets may be impacted by 2017 legislation changes, they can still be included in your capital loss statement. In some scenarios this can be an important component if or when you decide to sell the property or dispose of the assets. More importantly though, a trained specialist will identify additional works that will qualify for depreciation via renovations or additions completed sometime many years ago. Importance of noticing improvements during a site inspection Renovations and additions completed to a property over many years ago can be hard to find and are often missed by the untrained eye. For example, if your investment property originally had a gravel driveway and if anyone concreted the section where cars are parked, it may not seem like a qualifying addition, but that driveway will increase your claim. In this scenario, you wouldn’t be able to claim depreciation on the gravel as it is soft landscaping. But you can still claim capital works deductions on the newly concreted section for up to forty years. A specialist site inspector will identify any renovations completed by the previous owner. This means that if the original structure of the building is too old and ineligible for capital works deductions, you can still reap returns from any recent renovations completed in the last thirty plus years. Data shows that of all the schedules completed by BMT, 66 per cent have been for properties that have undergone some kind of renovation or addition. Maximising claims while maintaining compliance Knowing what to include in a tax depreciation schedule can seem straight forward. You look at the property and include what’s there, easy right? However, a specialist knows what to look for during a site inspection to ensure that your claim is maximised correctly. For example, a ducted air conditioner has division 40 and division 43 components. The ducting needs to be valued separately and added to the capital works deduction while under TR2021/3 the packaged unit is considered plant and equipment and depreciated using its unique effective life. Another example might be properly using immediate deductions that allow the owner to instantly deduct qualifying assets in the year of purchase. While knowing the cost of the asset may appear to be the only thing required to claim the deduction, this isn’t the case. An asset must meet four important steps to be eligible. Support from the industry The Australian Institute of Quantity Surveyors (AIQS) is the peak professional standards body for build environment cost professionals. The National Tax and Accountants’ Association (NTAA) is the representative voice for the tax community. Both the AIQS and NTAA support the requirement of site inspections. They know that when site inspections aren’t completed, deductions are missed, and costly errors are made. Some of the most common errors that happen is incorrectly claiming capital works deductions and misusing depreciation incentives such as the immediate deduction. When errors such as these are made, you can come under Australian Taxation Office scrutiny. Site inspections make it easier for you As a property investor, you are already juggling many things from work to tracking your cash flow to mapping out your future investment strategy. When a site inspection isn’t conducted, it means you must do a lot of the heavy lifting, from organising stacks of paperwork to providing the property’s structural information that you have never needed to think about before and not being a specialist yourself things will get missed. A site inspection takes the guess work out of preparing your schedule. BMT Tax Depreciation can make it even easier by organising the inspection directly with your property manager. BMT has been conducting site inspections on properties for over twenty years. A BMT Tax Depreciation Schedule has never failed an audit and is the preferred supplier to thousands of accountants across the country. To learn more about depreciation and how a site inspection can ensure you claim the most from your investment, Request a Quote or call BMT on 1300 728 726.

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TR 97/23 – Repairs and maintenance vs capital improvements

BMT team — Wed, 25 May 2022 06:05:48 +0000

Taxation Ruling TR 97/23, released in December 1997, outlines the tax deductibility of expenses incurred on repairs to premises, plant, machinery, tools and articles. Investment property repairs, maintenance and capital improvements are distinct from each other in the eyes of the Australian Taxation Office, as outlined in TR 97/23. Costs to repair or maintain an investment property can typically be claimed as an immediate tax deduction in the year that the expense was incurred, while capital improvements are not immediately deductible and must be classified as either a capital works deduction or as plant and equipment depreciation. Given that these things are not always clear cut, judgment often needs to be exercised when determining whether something falls under repair, maintenance or capital improvement. This can be difficult, so we provide some simple guidance here. Repair Maintenance Initial repair Capital improvement Answers to common questions Repair Under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 97), repair means ‘the remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense).’ For the most part, repair is simply to replace or correct something that has become worn out or dilapidated. It involves restoring to former appearance, form, state or condition without changing character. Works can fairly be described as ‘repairs’ if they are performed to fix: deterioration that has occurred by ordinary wear and tear, or accidental or deliberate damage, or the operation of natural causes (whether expected or unexpected) over time. For example, fixing a crack in plaster would be considered a repair. When determining whether work constitutes repairs, it is important to consider whether the work restores the efficiency of function of the property without changing its character. A minor degree of improvement, addition or alteration can be a repair, however, if substantial, it is not a repair and not deductible under section 25-10 of ITAA 97. According to TR 97/23 ‘renewal, replacement or reconstruction of the entirety (i.e., the whole or substantially the whole) of a thing or structure is an improvement rather than a deductible repair’. Maintenance According to TR 97/23, if work is in anticipation of, or to prevent, damage or deterioration, it is considered maintenance. Some examples include routine preventative work such as repainting faded walls, maintaining plumbing and deck oiling. Repairs and maintenance often go together, in that repairs will frequently include maintenance work. And some kinds of maintenance work are ‘repairs’ in terms of section 25-10, for example, painting premises to rectify existing deterioration and to prevent further deterioration Initial repair There is also a difference between a ‘repair’ and an ‘initial repair’. While a repair is performed to restore an item, an initial repair is to fix damage which was pre-existing when the property was purchased (whether known to the buyer or otherwise). Initial repairs are of a capital nature, so are not deductible under section 25-10 of ITAA 97. Capital improvement Any works that improve a property beyond its original state are classed as capital improvements. According to TR 97/23, an ‘improvement ‘provides a greater efficiency of function in the property – usually in some existing function. Some indicators that the work performed is an improvement include whether the work will: extend the property’s income-producing ability significantly enhance its saleability or market value, or extend the property’s expected life. A capital improvement will be classified as either a capital works deduction or as plant and equipment depreciation. Capital works deductions Capital works refer to the deductions available for the building’s structure and permanently fixed items. If the property owner is replacing an entire structure that is only partially damaged or is renovating or adding a new structure to the property, it is likely to be capital works. The rate of deduction for capital works is typically 2.5% per year for 40 years from the date of construction. An increased rate of 4% can be used for some property types. Plant and equipment depreciation Plant and equipment assets are items which are mechanical in nature or can be easily removed from the property. If the property owner is installing a brand-new asset such as an appliance, curtains or floor covering, then it is likely to be a depreciating asset. Each asset’s condition, quality and effective life determine the allowances available. Plant and equipment assets can be depreciated using either the diminishing value or prime cost method. Example Let’s consider the example of a rental property that is undergoing a kitchen renovation. Retiling splashbacks and installing a new marble benchtop would be deemed as capital improvements and be claimed as capital works deductions at a rate of 2.5 per cent over 40 years. A new rangehood would be claimed as a plant and equipment asset and be deducted based on the asset’s effective life. If the rangehood was purchased and installed for less than $300 it would be 100 per cent tax deductible in the year the expense was incurred. And if a crack in a cabinet was fixed, it would be considered a repair as a damaged asset is being restored. The expenses involved would then be claimed as an immediate deduction. Answers to common questions How can I tell if the work constitutes a repair, maintenance or capital improvement? It can get complicated when work falls under more than one category. For example, repair work doesn’t stop being a ‘repair’ if it is also maintenance i.e. the work is performed to prevent – or in anticipation of – defects, damage or deterioration. Repairs can also take place at the same time as capital improvements. The best rule of thumb when determining something is a repair, is to consider whether the work restores the efficiency or function of the property without changing its character. As mentioned previously, a minor degree of improvement can still be a repair, but if the change is substantial it is not a repair and therefore not deductible under section […]

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Are you looking to invest in property or shares? We’re here to help weigh up the pros and cons

BMT team — Thu, 30 Sep 2021 06:01:15 +0000

Property and shares are two popular choices when it comes to starting an investment journey. Each have their unique pros and cons and much needs to be considered before making a decision. When someone invests in property, they purchase it for the purpose of producing income (i.e. renting it out). You can invest in all types of property across the residential and commercial markets. While investing in shares involves purchasing a share (also known as ‘stock’) in a publicly listed company on a stock exchange, such as the ASX. Investors make money from shares through capital growth (selling the share once its value rises) and dividends. What’s a better investment choice? It’s important to consider the pros and cons of each. There is no straight forward answer to this question. Instead, it’s important to consider the pros and cons of each and how they align to your own investment goals. We recommend you speak to a financial adviser before you make any investment decisions. Property investment pros and cons Pros Capital gain Property historically grows in value over time even in the hardest of economic times. Currently economists from the major banks in Australia are predicting that Australian housing values will show annual growth by 18.5 per cent by the end of 2021. There are two key benefits of owning a property with capital growth. Firstly, it helps you build your equity which can help you reinvest. The second (and more obvious) way is selling the property at a profit. Reliable cash flow Attracting quality tenants to the property means you will have a reliable cash flow almost guaranteed for the lease term. The rental rate usually stays the same throughout a lease agreement which means you know how much money to expect and when. Increased tax deductions A key benefit of investing in property is the tax deductions that are unlocked. Essentially, most ownership costs associated with the property will become tax deductible. Examples are interest repayments, insurances, land taxes and real estate fees. This is all in addition to lucrative depreciation deductions that may be available. Unlike other deductions these can be claimed without an out-of-pocket expense which is why depreciation is often referred to as a non-cash deduction. The rental income from an investment property is offset by these tax deductions and any subsequent loss is further applied to reduce your overall taxable income, including your salary. Which means in this overall circumstance, you would pay less tax, saving you money. Cons Expensive Getting a step on the property ladder itself is expensive. Not only do you need the deposit at a minimum, but you also need to cover additional upfront costs. These can include stamp duty, conveyancing fees, lenders mortgage insurance if required and inspection costs. The upfront capital that is needed to get into the property market is the biggest roadblock for anyone, whether an investor or an owner-occupier. Understanding this when looking into your investment options is crucial. Tenant-related risk Like any investment, property has its risks. The most common one is those that are tenant-related. Even the most comprehensive tenant search can’t guarantee that accidents won’t happen. While a bond and landlord insurance can mitigate the risks, it doesn’t necessarily mean you’re covered for everything. Liquidity Selling an investment property is a long process. Even in a hot property market, the process from obtaining a property valuation to settlement can stretch out for months. This means that the liquidity of an asset like property is very low, it can’t just be converted into cash instantly and many variables impact how this occurs. Shares investment pros and cons Pros Ease of entry You can start investing in shares for as little as $50 through providers like Commsec pocket. While the bigger the investment, the bigger the risk and potential return, having the option to start off small can be a positive way to get started in the share market. For example, you can invest in what is called Exchange Traded Funds (ETF). An ETF is a passive, low-cost form of a managed fund which looks to gain exposure to specific areas through diversification across multiple shares or assets in that area to lower risk. ETFs are available for a wide range of tradable asset classes including Australian shares, foreign currencies and bonds. Capital gain A smart share investment choice can result in a big capital gain with little work. When you purchase a share at a lower price, hold onto it for a period of time and then trade it (sell) back on the share market at a higher price, you make a capital gain. However, a lot of patience can be required when making a significant capital gain on a share. Diversification You can become a shareholder in diverse range of listed companies. From tech stocks, the banking sector to health and retail players. Share portfolio diversification allows you to minimise risk and spread your investment across a number of profitable sectors. Liquidity Unlike property, shares have the added benefit of having high liquidity. This is because they can be sold very easily any day that the share market is open. This doesn’t guarantee that they can be sold at a higher price than what they were purchased for, but they can still be turned back into cash easily. Cons Shareholder rollercoaster Share prices can change significantly within a short period. Prices can go up and down due to internal or external macroeconomic factors that are impacting the company you hold a share in. Prices can also fluctuate with no reason at all which can make the process of investing in shares very stressful. Making a loss When you sell an asset at a lower price than you purchased it for, you are making a capital loss. The share market can be turbulent and you may be caught in a situation where you need to offload shares at a price lower than their original purchase price. Lack of or no dividends […]

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