» Residential property news

Missed claiming depreciation last financial year? It’s still not too late!

BMT team — Fri, 12 Jul 2024 23:52:02 +0000

You don’t need to daydream about a lottery win to get thousands in your pocket. If you’re a property investor, a natural process called depreciation means you can claim thousands, sometimes tens of thousands, without spending any money. BMT research suggests that approximately 80 per cent of investors fail to take full advantage of property depreciation. In some instances, it’s because they aren’t aware of when they are eligible to claim. BMT has answered your questions about when you can claim depreciation, and what to do when your tax depreciation schedule isn’t prepared before June 30. Contents What is property depreciation and how do you claim it? Order a schedule after June 30 and still claim for the last financial year Your tax depreciation schedule starts from your settlement date Genuinely available for rent Partial year deductions Key points: A tax depreciation schedule can be completed after June 30 Depreciation deductions start from your settlement date, not when the report was completed Depreciation can be claimed if the property is genuinely available for rent Partial year deductions are available for all investment properties What is property depreciation and how do you claim it? Depreciation is the natural wear and tear of a building’s structure and assets. If you’re an investor, you can claim this depreciation as a tax deduction. Depreciation is called a non-cash deduction because you don’t need to spend any additional money in order to claim it. A tax depreciation schedule is an essential piece of the depreciation puzzle. The first step of this process is a site inspection completed by a specialist site inspector from a quantity surveying firm. From here, the firm prepares a tax depreciation schedule that includes all depreciation deductions available. An accountant uses this schedule to determine your deductions at tax time. The tax depreciation schedule lasts the life time of the property and can be revised if any changes are made, such as a renovation. Order a schedule after June 30 and still claim for the last financial year You can still claim depreciation for the last financial year if your property’s tax depreciation schedule is completed after June 30. For example, if you ordered a tax depreciation schedule in July 2024 you can still claim depreciation deductions for the 2023/24 financial year. The only difference ordering a schedule before June 30 makes is how quickly you can claim back the schedule fee. This 100 per cent tax deductible fee can only be claimed in the year it was paid. Your tax depreciation schedule starts from your settlement date It’s important to know that it’s never too late to claim depreciation. When depreciation is missed in previous years, a tax depreciation schedule lets you claim back missed dollars. This is because the schedule starts from your settlement date, not the date the schedule was prepared. If you own a second-hand property and can’t claim depreciation on previously used assets, it’s important to let the quantity surveyor know of any new additions you have added to the property. This will allow you to claim depreciation deductions on them as they aren’t affected by the 2017 legislation changes. Genuinely available for rent Your investment property doesn’t need to be leased to allow you to claim depreciation deductions. As long as the property is ‘genuinely available for rent’, depreciation can be claimed. This means if there’s a gap where you are searching for new tenants, depreciation deductions are still available. Partial year deductions You can still claim depreciation deductions if you settled the property during the financial year, or if it’s only available for rent for part of the year. A tax depreciation schedule considers what is called ‘partial year deductions’. This means even if there is only a few days, weeks or months left in the financial year, depreciation deductions are still available. Partial year deductions are calculated on a pro-rata basis using the time the property was used as an investment. There are also mechanisms in depreciation legislation that a specialist quantity surveyor will apply to increase the claim for a partial year, even if the partial year is only a few days. This includes the immediate write off and low value pooling which allows you to claim particular qualifying new assets in full or at an accelerated depreciation rate regardless of how long they were owned. BMT specialises in preparing comprehensive tax depreciations schedules. We ensure that nothing is missed and that the highest level of compliance is maintained. To learn more about depreciation and the services offered by BMT, Request a Quote or contact the team on 1300 728 726.

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Six depreciation questions to ask yourself this tax time

BMT team — Tue, 28 May 2024 05:53:56 +0000

With tax time fast approaching, here are six questions you should be asking yourself to ensure you’re getting the most out of your investment property. 1. What are some common deductions I’m entitled to as a property investor? As a property investor, you’re entitled to a range of tax deductions. These will help lower your taxable income and make owning an investment property more viable, particularly if you own a negative cash flow property. Some of the tax deductions available to investors include deductions on council rates, the interest from a mortgage, property management fees, land taxes, strata fees, maintenance costs, insurance, accounting fees and depreciation. Of these deductions, depreciation is the most often missed. This is because it is a non-cash deduction. That is, the owner does not need to spend any money to claim it. In fact, research has shown that 80 per cent of property investors are missing out on the depreciation deductions they’re entitled to. However, given that investors can claim an average of $9,000 – $15,000 in deductions in the first full financial year alone, this is a deduction that should not be overlooked. A BMT Tax Depreciation Schedule outlines all the deductions you can claim for your property. It lasts for forty years and the fee for preparing it is 100 per cent tax deductible. 2. I’ve bought an investment property in the last few months – can I make a claim this tax time? If you haven’t owned the property for long and it’s only been income producing for a few months in the last financial year, you will be able to make a partial year claim. The Australian Taxation Office (ATO) allows investors to make a claim for depreciation based on the amount of days a property was available for lease. This could be if you’ve only recently purchased an investment property and only have one month to claim for, or you use your home as a holiday rental for part of the year. A BMT Tax Depreciation Schedule makes a partial year claim like this easy for you and your Accountant. 3. Do I need to update my tax depreciation schedule? If you’ve made any updates to your property in the past financial year, such as a renovation, it’s a good idea to get in touch with your Quantity Surveyor to see if you will require an updated depreciation schedule. It’s important to be aware that there is a difference between a repair and a capital works improvement as this will affect your claim. The cost of any repairs can be claimed in full in the same financial year they are completed. An improvement, on the other hand, is when you improve the condition of an item or property beyond that of when it was purchased. Such improvements are capital in nature and must be depreciated over time. For this reason, if you’ve made any renovations or improvements to your property in the last financial year, you should seek the advice of a property depreciation specialist or Quantity Surveyor to ensure it is claimed correctly. An updated tax depreciation schedule may be required after a renovation to capture all newly installed plant and equipment assets or capital works expenditure. 4. Am I maximising the deductions for my property? It’s one thing to be claiming deductions, but are you maximising them? A Quantity Surveyor specialising in depreciation will be aware of all the techniques you can make use of to maximise and accelerate the deductions you’re entitled to. As well as identifying assets that others may miss, they will make use of tools such as low-value pooling, scrapping and split reports to maximise the deductions you’re legally entitled to and put more money back in your pocket sooner. 5. Can my Accountant organise my depreciation deductions? An Accountant should recommend that you claim depreciation, organise a schedule on your behalf or refer you to a Quantity Surveyor. They will however not be able to estimate construction costs or provide you with a tax depreciation schedule. Only a qualified Quantity Surveyor can do that. Quantity Surveyors are one of the few professionals recognised by the ATO to have the appropriate construction costing skills to estimate building costs for depreciation. However, not all Quantity Surveyors specialise in tax depreciation. Only a tax depreciation specialist such as BMT can be relied on to maintain detailed knowledge of all current ATO tax rulings relating to depreciation. Once you have a Tax Depreciation Schedule completed, your Accountant can input these deductions into your annual income tax return. 6. I’ve only just found out about depreciation. Does this mean I’ve missed out on past years’ deductions? Investment property owners often enquire about a property they have owned and rented for a number of years but have not claimed depreciation deductions for. The ATO allows tax returns to be easily adjusted for two years after the initial submission. This enables property owners to recoup some of the deductions that may have been missed. It is important to note that a separate application will need to be submitted for each financial year requiring an amendment. Income, depreciation and other claims made will impact the outcome of each tax return. In the situation where an investor has missed or not maximised their claim in previous years, the depreciation schedule can be tailored within the eligible years. To start claiming or maximising your depreciation deductions with BMT, request a quote.

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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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Start claiming depreciation deductions sooner

BMT team — Thu, 04 Apr 2024 00:13:07 +0000

With the end of financial year fast approaching, now is the time to get your tax depreciation schedule sorted if you haven’t already. There are significant advantages to ordering a depreciation schedule immediately after purchase that can help you to maximise your return and make the most of your investment. Before we look at those advantages, let’s recap what depreciation is and how it assists property investors. Contents: Depreciation deductions Claim the cost of your schedule straight away Partial year claims Receive payments regularly using Pay as You Go (PAYG) Claim missed deductions Depreciation deductions The Australian Taxation Office (ATO) allows property owners to claim the depreciation, or decline in value of an asset, as a tax deduction. Depreciation is a non-cash deduction, meaning an investor doesn’t need to spend any money to claim it. For this reason, depreciation deductions are often overlooked. This is a costly mistake for investors, as depreciation deductions carry significant taxation benefits. With tax time approaching, property owners should be sure they are claiming all the deductions to which they are entitled. Owners of income-producing properties can claim depreciation deductions related to the building’s structure as well as the plant and equipment assets within the property. It’s important to organise a depreciation schedule before the end of the financial year to maximise your deductions and claim everything you’re eligible for from the year. Failing to claim depreciation means missing out on thousands of dollars. In FY2022/2023 to-date, BMT found investors an average first year deduction of almost $9,000. Claim the cost of your schedule straight away A depreciation schedule has a one-off cost which lasts the life of the property (forty years) and will ensure the owner claims their depreciation entitlements correctly. The cost of the depreciation schedule is 100 per cent tax deductible. One of the advantages to ordering and paying for a depreciation schedule before 30 June is that an investor will be able to claim the fee straight back that financial year. This not only means less time out of pocket, but it eliminates the risk of forgetting to claim the depreciation schedule’s fee as a tax deduction in the following financial year. Partial year claims If a property has been owned and rented for only a short period, investors often postpone obtaining a tax depreciation schedule until the next year. However, there are ways in which partial year deductions can be maximised, resulting in extra cash for the owner. Usually, the total depreciation available in the first financial year is adjusted according to the portion of the year the property is owned. For example, if a property is owned for six months, then 50 per cent of the depreciation could become available. However, specialist quantity surveyors can use legislative tools to make partial year claims beneficial to property owners, regardless of the time a property is owned and rented. Immediate write-off is one tool used. Any item added to a property costing less than $300 can be immediately written off within the first year. This is regardless of how many days the property is owned in that year. Low-value pooling can also be used to maximise claims over a short period of time. Low-value pooling applies to items in an investment property that are worth less than $1,000. Placing items in a low-value pool allows the owner to accelerate the rate of depreciation, increasing deductions earlier. A high-quality tax depreciation schedule should include a partial year claim based on the time the property is rented. Receive payments regularly using Pay as You Go (PAYG) Investors often look forward to tax time. Many of the losses from holding a property can be claimed back, including interest, rates, repairs and maintenance, property management fees and depreciation deductions. Many investors may not realise that they don’t have to wait all year to benefit from the deductions available to them. Instead, they can improve their cash flow throughout the year simply by nominating to use a Pay as You Go (PAYG) withholding variation. Introduced in July 2000, a PAYG withholding variation allows individuals to vary the amount of tax withheld by their employer in each pay to anticipate their tax liabilities. This means that they can take advantage of the deductions available to them regularly, rather than waiting until the end of a financial year for their tax refund. By selecting a PAYG withholding variation, a property investor’s expected tax refund for the financial year is estimated. This allows their employer to take less tax out of their wages. As can be seen in the example, a PAYG withholding variation will provide added flexibility for a property investor. Having access to the extra money during the year makes it easier to manage cash flow, especially when there can be surprise costs such as urgent repairs or maintenance. The additional income also gives the owner the option to invest the extra money or reduce loan liabilities. It is important to note that submitting a PAYG withholding variation does not replace a normal tax return. A tax return still needs to be filed at the end of the year to calculate the actual amount of tax liability. Claim missed deductions If you have not previously claimed depreciation deductions on your investment property, the ATO allows you to recoup missed payments for past financial years by adjusting your tax return. This is particularly useful for first time investors who were previously unaware of depreciation deductions. It is always advisable to stay on top of your finances by claiming deductions in the applicable year, as delaying your claim will only add extra confusion and stress to your next tax return. Ordering your tax depreciation schedule before 30 June is important if you want to maximise your returns and keep your finances on track. If you have any questions about claiming depreciation, contact the expert team at BMT Tax Depreciation on 1300 728 726 or Request a Quote.

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Rental property tax deductions you can claim

BMT team — Sun, 31 Mar 2024 22:00:34 +0000

Property investors have access to numerous tax deductions for rental properties, which can reduce taxable income and increase cash flow. Leveraging these deductions supports the development of a successful property portfolio and enhances prospects for future investment expansion. We have listed some of the most lucrative tax deductions all investors should be claiming: Interest repayments Insurance Advertising fees Repairs and maintenance Travel Body corporate fees Property management fees Cleaning expenses Council rates Gardening and lawn mowing Water charges Pest control Utilities Legal fees Tax depreciation schedule and accounting fees Refinancing costs Land tax Property depreciation Interest repayments You can claim the interest charged on your rental property’s home loan. This is in addition to any other fees related to servicing the loan. It’s important to note that you can’t claim payments made on the home loan’s principal amount. The same applies if you have used part of the loan for private purposes. In this instance, any interest repayments deductions must be apportioned. Insurance Protecting your investment property against underinsurance is an important step. The two most common insurances you need for a rental property includes landlord insurance and building and contents. Your insurance premiums are tax deductible. When you pre-pay for your insurances you can claim it back in the same financial year. Advertising fees Finding the right tenants for your property usually requires advertising and marketing. When you organise this yourself, you can claim any expenses from doing so. However, if the rental is managed through a property management agency, you can’t claim any advertising they conducted separately. This is usually included in their property management fees. Repairs and maintenance The repairs and maintenance you complete on your rental property can be significant tax deductions. Repairs are work completed to fix damage or deterioration of a property, such as replacing part of a rusted gutter or broken fence. Meanwhile, maintenance is the work completed to prevent damage to the property such as varnishing a deck. It’s important to be aware of the difference between repairs, maintenance and capital improvements. A capital improvement is when the condition or value of an item is improved beyond its original state. A common example of a capital improvement is retiling a bathroom, which would need to be depreciated as a capital works deduction. Travel Legislation changes made in 2017 may affect your eligibility to claim travel expenses to and from your rental property. Generally, you can only claim travel expenses if you are in the business of renting residential properties. Therefore, the ATO only allows the following entities to claim travel expenses: corporate tax entity superannuation plan that is not a self-managed superannuation fund public unit trust managed investment trust unit trust or a partnership, where all members are entities of a type listed above Body corporate fees If your rental property is part of a strata, you can claim the cost of the body corporate fees. If part of this fee includes maintenance and cleaning to common areas such as the gym or garden, you can’t claim these costs separately. Property management fees It’s common to have a rental property managed through a property management professional. Under this arrangement, you will have a dedicated property manager that looks after things like inspections, organising leases, advertising and handling disputes. The fees associated with having a property manager are entirely tax deductible. You can even claim your own expenses associated with calling or emailing them. Cleaning expenses Sometimes you may need to get your rental property cleaned regularly as part of the lease agreement, or once a tenant has left. You can claim these cleaning expenses as tax deductions. The same applies if you have purchased cleaning products specifically to clean the rental property yourself. The cleaning product costs are also tax deductible, however you can’t claim for your own time spent cleaning. Council rates Local government and council rates are 100 per cent tax deductible for the entire time your property is available for rent. The Australian Taxation Office (ATO) considers these as ongoing expenses that are incurred in the course of earning rental income. The same applies if your local council charges an annual emergency services levy. Gardening and lawn mowing If your property’s lease agreement has garden and lawn maintenance included, you can claim any expenses associated with doing so as a tax deduction. This includes hiring professional lawn mowing and garden maintenance services. Water charges Any water charges you pay for the property are tax deductible. While water usage is sometimes covered by the tenant, the expenses you directly incur, such as the annual service charge and any sewer service charges, can still be claimed. Pest control Household pests can include anything from fleas and cockroaches to ants and mice. Determining who is responsible for pest control can usually be found in a lease agreement. When you are responsible for pest control of the property, the expenses can be claimed as tax deductions. Utilities Including utilities under a lease agreement can increase tenant demand and the property’s rental rate. Any utilities you include and pay for, including electricity and internet, are tax deductible. Legal fees Only some legal fees can be tax deductions. Generally, only legal fees associated with rental activities are tax deductible. For example, if you went to court over malicious damage the tenant made to the property, you could claim the costs of doing so. When legal fees are classed as capital cost, they aren’t immediately tax deductible. The easiest way to remember what a capital costs is, is to think of them as the costs associated with acquiring the property such as stamp duty. Any legal expenses associated with buying the property aren’t tax deductible and instead make up part of the property’s cost base. Tax depreciation schedule and accounting fees Paperwork and tracking income and expenses can be extensive when owning an investment property. Having an accountant to look after this for you is the easiest way to make it a stress-free experience. Your accountant uses a tax depreciation […]

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Should you furnish your rental property?

BMT team — Thu, 07 Mar 2024 22:12:14 +0000

Have you considered leasing out your investment property furnished? When you furnish a rental property, the furnishings become part of the Division 40 plant and equipment assets allowing you to claim depreciation deductions for the wear and tear of the furniture over their effective lives, reducing your taxable income. To help you weigh up the pros and cons of renting out your property furnished, BMT has answered some commonly asked questions when it comes to rental furnishings. Q: Is furniture tax deductible for rental property? A: In most cases, furniture purchased by an investor for an income-producing property will attract depreciation deductions. Depreciation refers to the natural wear and tear a property and its assets experience over time. The Australian Taxation Office allows investors to claim a deduction for this wear and tear. Furniture within an income-producing property is typically claimed as a plant and equipment deduction, which refers to the easily removable items within an investment property. To be eligible to claim depreciation for furniture within a rental property, you must: purchase the items when the property is income-producing or genuinely available for rent directly incur the cost of the furniture. Q: What’s the easiest way to claim deductions for furniture? A: A tax depreciation schedule is the best way to ensure you claim all the deductions you’re entitled to. A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of a property (forty years) and is 100 per cent tax deductible. During the FY 2022-2023, BMT found residential property investors an average first year deduction of almost $9,000. Q: Can I claim deductions on second-hand furniture? A: The short answer is no. While second-hand furniture can be a cost-effective option, it’s ineligible for depreciation deductions. This is due to 2017 legislation changes that disallow depreciation deductions to be claimed on second-hand plant and equipment assets. This includes those that still have remaining depreciable value. Q: Can I charge higher rent if the property is furnished? A: A landlord can typically charge a higher rental rate for a furnished property. Depending on your location and property type, you may be able to charge between 15 to 70 per cent more. While this seems like a fantastic return on an investment, any landlord considering furnishing a rental property should first consider the reduced tenant demand. Most tenants are looking for unfurnished property, so be sure to assess your local property market carefully. Q: What type of tenants will a furnished property attract? A: Furnished properties typically attract travellers, young tenants who haven’t accrued their own furniture and business professionals who frequently move for work. With this in mind, furnished leases reflect the intermittent nature of such tenants and are usually between three and six months long. These types of leases are usually suited to major metropolitan areas or smaller regional centres that have a fly-in fly-out lifestyle. Q: What happens if my furniture is damaged? A: If the lease states that you are renting out a furnished house with appliances, then you’re not only responsible for keeping the building in good shape, but the furniture and appliances as well. However, if the tenant damages your belongings, you may be entitled to make an insurance claim so it’s important to have proper cover. Landlord insurance is a type of insurance policy designed to protect property investors from tenant-related risks including loss of rental income and malicious or accidental damage caused by the tenant. As landlord insurance is an investment expense, it can also be claimed in your annual tax return. It’s important to note that each landlord insurance policy will differ. For more information, contact BMT Insurance on 1300 268 467. Q: When is it a good idea to have an unfurnished property? A: An unfurnished property is more likely to appeal to tenants looking for a home over the long-term. Typically, this means that leases will be for six to twelve months. Some tenants prefer the opportunity to furnish the property and can be put off by a landlord’s furniture. This is especially the case if a tenant already has their own furniture that would need to be stored elsewhere. If you’re undecided on what to do, perhaps advertise your rental as unfurnished and include the option to have it furnished for additional rent in the listing description. There are a number of advantages and disadvantages to furnishing an investment property. It’s important for investors to consider their personal circumstances before making a decision.

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The capital gains tax implications of inheriting an investment property

BMT team — Sun, 25 Feb 2024 04:17:36 +0000

Property inheritance is the transfer of property to an heir or beneficiary upon the death of an owner. There are various tax implications triggered when inheriting an investment property, particularly where capital gains tax (CGT) is concerned. In the instance that an inherited property is sold immediately, the tax implications will be determined by factors around the date of acquisition and the type of use of the property by the previous owner from whom it was inherited. In this article BMT outlines the CGT implications of four different scenarios including: inheriting a property that was a main residence and selling it immediately inheriting an investment property and selling it immediately inheriting an investment property and living in inheriting an investment property and keeping it as an investment property Scenario 1: Inheriting a property that was a main residence and selling it immediately Let’s say that a beneficiary has inherited a property from a deceased family member and decides to sell the property rather than keep it. Will capital gains tax apply? Well, that will depend on the purpose of the property and the date the deceased acquired the property. The property will be exempt from CGT if: • the property was the main dwelling (i.e., was not used to produce income) from the time the deceased acquired the property until their death, and is sold by the beneficiary within two years • from the time the deceased died, the property was used only as the main residence of at least one of the following people: – the spouse of the deceased immediately before their death (but not a spouse who was permanently separated from the deceased) – a person who has a right to occupy the property under the deceased’s will – the beneficiary, if they dispose of the property as a beneficiary. If the property was used to produce income, i.e., it was an investment property, the property is not fully exempt. However, the beneficiary could qualify for a partial exemption. Scenario 2: Inheriting an investment property and selling it immediately Let’s now say a beneficiary has inherited a property which was used to produce an income – and never as a main residence. In this scenario the full CGT applies when selling. But if the inherited property was used as both a main residence and as an investment property, then a partial CGT exemption may apply. The partial exemption is calculated as follows: Capital gain (A) × non-main residence days (B) ÷ total days (C) = capital gain or loss (D) ExampleSally inherited her grandmother’s rental property which she sold immediately, resulting in a capital gain of $400,000 (A). The house was owned by Sally’s grandmother for twenty years (C), twelve (B) of which was used to produce an income. Sally will need to pay CGT on the time the property was income producing but will be eligible for an exemption for the time it was a main residence and will qualify for the fifty per cent discount as it was owned for longer than twelve months.The capital gain is calculated as follows: $400,000 × 4,380 days ÷ 7,300 days = $240,000 A B C DThe fifty per cent discount is calculated as follows: $240,000 x 50% = $120,000 A capital gain of $120,000 is then taxed at Sally’s marginal tax rate. In instances where an inherited property was used both as a rental and a main residence, but was the deceased’s main residence right before their death and disposed of within two years, the property is exempt from CGT. For inherited properties that were previously inherited a different tax implication applies. The formula for calculating the partial main residence exemption is adjusted if the deceased also acquired the property on or after 20 September 1985 as a beneficiary (or trustee) of a deceased estate. The main residence exemption is calculated according to the number of days the property was the main residence of the current owner and the previous beneficiaries. It’s important to note the main residence exemption is generally not available to foreign residents or if the deceased was a foreign resident. Scenario 3: Inheriting an investment property and living in it There are partial CGT exemptions available to people who inherit investment properties and live in them as their main residence. A person who inherits an investment property can claim the days the property was not used to produce an income under the main residence exemption in the event of selling. ExampleTom inherited a property from his father (James) which James used as a rental property for eight years. Tom lived in the property for ten years after taking ownership, which makes it his main residence. He is therefore eligible for the main residence exemption. Tom decides to sell the property after ten years of living in it, resulting in a capital gain of $350,000.The main residence exemption is calculated as follows: Capital gain × non-main residence days ÷ total days = capital gain or loss$350,000 × 2,920 ÷ 6,570 = $155,555 As Tom owned the property for longer than twelve months, he is also entitled to the fifty per cent discount. $155,555 x 50% = $77,777.50 In this scenario Tom will pay CGT on the $77,777.50 at his marginal tax rate instead of $350,000 under the main residence exemption and the fifty per cent discount. Scenario 4: Inheriting an investment property and keeping it as an investment property In scenarios where the new owner wants to continue using their inherited property as a rental property, a different set of tax implications and benefits apply. If the property was used as a main residence at any stage of ownership, it may be eligible for a partial exemption. The fifty per cent CGT discount will also apply in this scenario if the property is owned for […]

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Repurposing for demand: Office to residential conversions

BMT team — Fri, 23 Feb 2024 04:51:40 +0000

The evolving work landscape has led to businesses reassessing their office footprint, resulting in a decrease in office leasing. While the demand for A-grade or prime office space remains solid in some areas, older or subprime office buildings are struggling to fill their floors, with research showing a 6% decrease in demand from a year ago and a 24% decrease from pre-pandemic levels in cities globally. Some owners may consider adaptive reuse as a viable option to preserve the building, with popular options including hotel conversions, data centres and the office to residential conversion. Repurposing office buildings into residential units is gaining traction worldwide as a solution to housing shortages. In New York, the Office Adaptive Reuse Task Force is focused on converting outdated office spaces into housing, aiming to create 40,000 apartments from unused office buildings. New data indicates that 250 million square feet of vacant office space in Europe’s top 35 cities can potentially yield 500,000 homes and Australia is in a similar position. NSW office vacancy rates are currently above 13% and a recent study by the Property Council of Australia found that almost 90 Melbourne CBD office buildings are ‘ripe for adaptive reuse’, which could create up to 12,000 new homes in locations where amenity, transport connections and jobs already exist. In Melbourne the superannuation fund Australian Unity recently converted its headquarters into a seniors residential complex and the TNT Apartments towers at Redfern in Sydney were converted from a commercial space to 181 residential apartments. Though the high costs and regulatory challenges have been a deterrent for investors so far, governments worldwide are incentivising such conversions, and policymakers are working to simplify regulatory obstacles, which will hopefully reach Australian shores soon. In addition, the depreciation deductions available on these office to residential conversions will also increase the investor’s cash flow. Below is an estimate of the depreciation deductions that an investor might earn when converting a 1,200 square metre office space in North Sydney to 12 x 100 square metre residential units. Each includes two bedrooms, one bathroom, a kitchen with modern appliances and a connecting lounge area. To maximise the depreciation deductions on your office to residential conversion or to find out more about BMT and the additional services we offer, contact the team on 1300 728 726 or Request a Quote.

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Ways to maximise depreciation tax deductions

BMT team — Wed, 21 Feb 2024 04:53:27 +0000

With ongoing interest rate hikes and subsequent increases in mortgage repayments, it has become increasingly crucial for property investors to find ways to enhance their cash flow. A strategy to achieve this is to maximise the depreciation tax deductions on their investment properties. 1. Get an onsite inspection Research shows that 80% of investors don’t claim the maximum depreciation deductions on their investment properties. Only a specialist quantity surveyor will spot the dollars hidden in the details. Quantity surveyors are highly specialised and when construction work is undertaken or assets are added or removed from a property during its income-producing period, an expert will be able to calculate the depreciation tax deductions accordingly. New as well as older properties can qualify for substantial depreciation tax deductions, but these are often not visible without a physical site inspection. A site inspection by a specialist will ensure that every potential deduction is uncovered and maximised, so that the highest possible depreciation amount can be claimed. In 2023 the Australian Institute of Quantity Surveyors released a white paper stating that the most reliable and secure way to maximise the depreciation deductions on an investment property is by engaging a qualified, reputable quantity surveyor with an onsite inspection to ensure a reliable depreciation schedule. Choose a property depreciation expert like BMT Tax Depreciation who will conduct a site inspection before completing the depreciation schedule. 2. Talk to a specialist Property tax depreciation refers to the wear and tear of an income-producing property and its assets over time. Irrespective of the type of property, renovating and completing upgrades may be an effective way to increase rental income and grow the value of a property, while maximising tax deductions on the investment through depreciation. When it comes to commercial property, both the owner and tenant can claim depreciation tax deductions. The BMT Tax Depreciation Schedule can include separate reports where multiple entities or tenants control different assets or have different acquisition dates. Using industry specific legislation, a specialist will assess the property to ensure every deduction is uncovered and maximised. This includes any fit-out installed or assets removed during an upgrade or renovation. It can also include new amenities like bathrooms, kitchens, accessible parking and security, which be an effective way to add value to the property and secure top-end tenants. In the case of a residential strata complex, all common property items where legislation allows, will be considered when the depreciation schedule is compiled. It is therefore important to keep a record of any documentation related to the purchase agreement and subsequent changes that may have been made to the strata agreement. 3. Tailor your schedule to your investment strategy Plant and equipment depreciation can be claimed using different methods. Determining a property investment strategy at the outset of the property journey, will impact the depreciation method chosen. Diminishing value and prime cost are the two methods of calculating property tax depreciation over the life of the property. Both methods claim the same amount of depreciation over time but achieve different short and long-term cash flow outcomes for the investor. You can only choose one of these depreciation methods for the lifetime of your depreciation schedule, so it is important to analyse and compare how this choice will affect cash flow before making a decision. If you purchase a property as a short-term investment with the purpose of selling again in the coming years, the diminishing value method will offer the most deductions in the earlier years of the property’s effective life. The diminishing value method may therefore be a more attractive option for an investor looking for higher depreciation tax deductions over the short term. Alternatively, the prime cost method, also referred to as the straight-line method, offers equal deductions calculated as a percentage of the cost. If a property is purchased as a long-term investment, the prime cost method will return lower, but more consistent deductions in the later years of the life of the property. We always recommend that investors consult with an accountant or financial adviser to discuss their personal circumstances and investment strategy. A BMT Tax Depreciation Schedule includes both the prime cost and diminishing value methods of depreciation to help make an informed decision before claiming. Request a quote today.

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Tax return dates Australian property investors must know

BMT team — Thu, 18 Jan 2024 00:42:41 +0000

Missing a tax deadline is not only stressful but can set a tax return back and potentially result in fines or legal penalties. Never miss an important tax date again by adding the following dates to your 2024 calendar. 2024 key tax dates Tax return lodgement dates vary between individuals, companies, trusts and partnerships. The key factors that determine an individual or entity’s relevant return date is the amount of their tax liability, entity size and if they lodge their tax return themselves or do so through an accountant. January 30 February 28 March 31 May 15 June 5 June 30 October 31 December 1 How to keep track of income and expenses throughout the year January 30 Large and medium trusts with a total annual income of more than $10 million in the latest year lodged and where the trust was taxable in the previous year of lodgement must lodge their tax returns on this date. February 28 Large and medium trusts with a total annual income of more than $10 million in the latest year lodged, where the trust was non-taxable in the latest year lodged, must lodge their tax returns on this date. This lodgement date includes newly registered large and medium trusts. Subsidiary members of a consolidated group that exited the consolidated group in the financial year, and new registrants of head companies of consolidated groups must lodge their tax return by this date. March 31 Individuals, partnerships and trusts with a tax liability of $20,000 or more must lodge their tax returns on this date. This does not include medium or large trusts. May 15 If an investor lodges their tax return via an accountant, the previous financial year’s return must be lodged by this date. Tax returns for all remaining individuals and trusts are also due on this date. Non-profit organisations with a requirement to lodge and which haven’t been allocated an earlier lodgement date must also lodge their tax returns by this date. This includes new registrations and entities not eligible for the 5 June concession. New registrants, excluding large and medium taxpayers, head companies of consolidated groups and SMSFs must also lodge their tax return by this date. June 5 Although 5 June is not an official lodgement date, the ATO allows lodgement of tax returns past the lodgement due date of 15 May for individuals, partnerships and trusts who meet the necessary criteria. You do not need to apply for a deferral to receive the 5 June concession date. This concession allows the tax returns to be lodged by 5 June without penalty, provided any payment required is also made by this date. June 30 The end of the financial year is a key tax date that should be marked in everyone’s calendar. Taxable income and expenses are measured in each financial year and 30 June signals the end of the formal financial year. Investors are encouraged to pay all the expenses they can, before the end of the financial year to ensure the best return. Where possible, expenses such as interest, insurance, tax depreciation schedules and other ongoing expenses should be pre-paid before this date, to ensure that they can also be claimed in the same financial year of payment. October 31 If an investor is lodging their tax return through the ATO’s online MyTax portal, they must lodge the tax return of the previous financial year by October 31. The same date generally applies to all self-lodged returns including partnerships, self-managed super funds, trusts and sole traders, unless lodged through a registered accountant or otherwise advised. Entities with one or more prior year tax returns outstanding as of 30 June 2024 and other entities who have been advised to lodge early must lodge their tax return by this date. December 1 Companies that are not full self-assessment taxpayers must lodge their tax returns by this date. How to keep track of income and expenses throughout the year Be prepared and ensure a stress-free tax time by keeping diligent record of all income and expenses throughout the financial year. Keeping track of income and expenses with an investment property is easy with a MyBMT account. The various tools and features available on a MyBMT account, helps thousands of investors record and track investment property related income and expenses, simplifying the process of sharing expenses with their accountant. Accountants and Property Managers can access records and manage various properties on a centralised MyBMT account. BMT Tax Depreciation is ATO compliant and works closely with accountants to ensure maximum property depreciation deductions for each client. To maximise the property depreciation tax deductions on your investment property Request a Quote or contact the BMT Team on 1300 728 726.

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