» Renovations

5 ways to improve commercial property performance

BMT team — Thu, 28 Sep 2023 05:12:21 +0000

Businesses are finding themselves in a position where improving the performance of their commercial property is paramount. Improving the performance of a commercial property can lead to an increase in value, better occupancy rates, and a healthier bottom line. In this article, BMT Tax Depreciation explore how to increase commercial property performance and how claiming depreciation can help businesses recoup costs. 1. Renovate Renovating and completing upgrades is the most effective way to increase commercial property value. Upgrades may include new flooring, painting, fixtures or perhaps a complete rebuild of the building’s structure. Renovating will increase the value of a property and boost rental demand and rental return. Businesses should consider completing smart renovations which appeal to a large cohort of tenants and will deliver a high return on the investment. It’s important to discuss any upgrades with a commercial real estate professional to ensure that the works will increase returns. 2. Improve energy efficiency Improving energy efficiency can save on overhead costs, reduce environmental impacts and attract quality tenants. Switching to energy-efficient lighting, such as LED bulbs, can help reduce energy consumption and costs. Businesses can also install sensors and timers to ensure that lights are turned off when not in use. Other improvements can include insulation, upgrading appliances, solar panels, improving water storage, airtight window sealing and improving material selection. Where possible, renovating buildings to use natural lighting and ventilation, utilising green roofs and walls, and using environmentally friendly materials will significantly improve sustainable practices and energy efficiency. 3. Utilise government depreciation incentives Businesses who own and operate commercial buildings can take advantage of the various incentives introduced by the Australian Government to boost performance. Under the extended Instant Asset Write-Off, businesses with an aggregated turnover of less than $10 million can claim an immediate deduction for new or second-hand assets added to a building costing less than $20,000 on a per-asset basis. Owners can enhance their cash flow by accelerating deductions and seize the opportunity to carry out asset upgrades that might otherwise be unfeasible. 4. Introduce new amenities Introducing new amenities to a commercial property can be an effective way to add value to the property. Installing amenities such as new bathrooms, kitchens, fitness centres, cafés, accessible parking and transportation, an outdoor space and security measures will add value and likely attract high end tenants. 5. Claim depreciation Depreciation is a tax deduction available for the natural wear and tear of an income-producing property and the assets within it. Claiming depreciation allows commercial property owners and tenants to lower potential taxation liabilities while also improving cash flow. Increasing the value of a commercial property requires a multifaceted approach. Businesses can maximise the depreciation deductions they claim by engaging a quantity surveyor to prepare a tax depreciation schedule. Quantity Surveyors, such as BMT Tax Depreciation, are one of the few recognised professionals with the training to identify and accurately calculate construction costs. BMT has streamlined its commercial process to guarantee that both property owners and tenants can claim the highest possible deductions in full compliance with regulations. Additionally, BMT diligently applies relevant government incentives, maximising the benefits available to clients. If you’re considering upgrading a commercial property or don’t yet have a commercial tax depreciation schedule, call BMT on 1300 728 726 or Request a Quote.

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How to calculate scrapping value in depreciation

BMT team — Sun, 13 Nov 2022 15:07:09 +0000

Are you a business or commercial property owner looking to make the most out of updating your fit-out or your next renovation? The key to making the most out of your spend is claiming a deduction for removed assets, this is called scrapping. Understanding scrapping value and how it’s calculated can boost your cash flow to its full potential, even after you have thrown items in the bin! In this article we will explore: What is scrapping value and how does it work? How to accurately calculate scrapping value in depreciation Taking advantage of scrapping value with new business incentives Claim scrapping with the depreciation specialist Key points: Scrapping value is the un-deducted value of a depreciable asset. When a business owner or commercial investor disposes of an asset, they can claim an instant deduction for the scrapping value. A tax depreciation schedule is usually required to calculate scrapping value in depreciation. What is scrapping value and how does it work? Scrapping value is essentially the un-claimed or un-deducted depreciable value of an asset. The basic equation of calculating scrapping value is: Original depreciable value – deducted value to date = scrapping value For example, if $5,000 was an asset’s original value and at the time of the asset’s disposal the remaining value was $3,000 (after claiming $2,000 in depreciation), this would be the ‘scrapping value’. The owner could then claim the $3,000 as an instant deduction in the same financial year. How to accurately calculate scrapping value in depreciation The scrapping value can be easily calculated by having a tax depreciation schedule prepared by a specialist quantity surveyor. A specialist will need to prepare a schedule both before and after assets are disposed of. The purpose of the initial schedule is to show the original assets so the scrapping value can be calculated once the assets are removed. The second schedule will include any new replaced assets and any existing assets that weren’t removed. Taking advantage of scrapping value with new business incentives Right now is arguably the best time for business owners to take advantage of scrapping. The temporary full expensing policy allows most businesses to instantly deduct any new plant and equipment assets that they purchase. The below scenario shows how this can supercharge first-year deductions. Kayla owns a retail business and has decided to update her store’s fit-out. She organised a tax depreciation schedule to be prepared prior to the fit-out renovation. The schedule found that the total scrapping value of the removed fit-out came to $25,000. Her new fit-out plant and equipment assets came to a total of $65,000. Some of the assets included shelfing, tables, clothing racks, change room curtains and carpets. By combining the scrapping value deduction and full expensing the new assets, Kayla can benefit from a huge first-year deduction of $90,000. Claim scrapping with the depreciation specialist You can ensure you claim the maximum scrapping value available with BMT Tax Depreciation. BMT has helped thousands of investors and business owners claim depreciation through scrapped deductions. To find out more about BMT and the additional services they offer, contact the team on 1300 728 726 or Request a Quote.

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Understand how Investment property renovations increase tax deductions, rent and property value

BMT team — Mon, 17 Oct 2022 06:06:34 +0000

BMT Tax Depreciation are often asked what investors can do to increase tax deductions and boost cash flow. One way is to renovate! Investment property renovations increase tax deductions, help with increasing a property’s value and improve rental yield leading to greater returns. This article outlines the different types of investment property renovations, what to look out for and how to maximise tax deductions. Depreciation explained Greater returns Repairs, maintenance and capital improvements Previously used plant and equipment can’t be claimed Scrapping Renovations completed by a previous owner Cosmetic versus substantial renovations Maximise the tax benefits with depreciation Depreciation explained Depreciation is the natural wear and tear of a property and the assets within it over time. The Australian Taxation Office (ATO) allows owners of income-producing properties to claim this as a tax deduction. There are two types of deductions available to claim. Capital works deductions (Division 43) is a claim available for the building’s structure and the assets that are permanently fixed to the property. And plant and equipment depreciation (Division 40) is a claim on the assets that are easily removable from the property or mechanical in nature. Capital works deductions are a fixed amount that can be claimed each year on all applicable building structures for up to forty years. Plant and equipment items have varying effective lives and therefore can be depreciated at an increased rate which varies depending on the asset and the method used to calculate the claim. Greater returns Renovating an investment property will not only heighten depreciation deductions but can also increase the capital growth and rental return. Even updating the flooring, adding a fresh coat of paint and updating areas like the kitchen or bathroom can attract better quality tenants and increase rental return. The case study below demonstrates a scenario where an investor completed a $65,000 renovation. Here is the investor’s scenario before and after completing the renovation • Original purchase price (before renovation) = $610,000 • Rental income per annum prior to renovation = $20,580 • Total renovation spend (completed in 2021) = $65,000 • Property value on completion = $785,000 • Rental income per annum after renovation = $27,040 Due to the renovations completed the property’s value increased by $175,000 and yielded an additional $6,460 per annum in rental income to. Repairs, maintenance and capital improvements Knowing the difference between repairs, maintenance and capital improvements is particularly important when renovating. 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. This occurs when an asset is already damaged or deteriorated and therefore requires repairing. Maintenance, on the other hand, 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. The total cost incurred to repair or maintain your investment property can 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 does not always qualify for repairs and maintenance and therefore not always 100 per cent is claimable in the first year. Instead, these costs are treated as capital improvements and depreciated as capital works deductions or depreciation of plant and equipment. A capital improvement is considered any works that improve a property beyond its original state. 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 For investors who already possess a BMT depreciation schedule and would like to update minor upgrades they can do this via email, the MyBMT portal or a phone call. Previously used plant and equipment can’t be claimed Residential property investors completing renovations should be aware of the 2017 legislation changes. The legislation stipulates that investors who purchased property after 7.30pm on 9 May 2017 are unable to claim deductions for the decline in value of previously used plant and equipment found in second-hand residential properties. But these investors can still claim depreciation on new plant and equipment assets added to a property and all structures new and old as capital works deductions. It’s common for investors to live in their property while renovating. While this may seem like a good idea, all plant and equipment assets like air-conditioning units, light fittings and hot water systems will be classified as previously used and no longer be eligible for depreciation deductions due to the legislation changes. Scrapping Assets may be removed while there is remaining depreciable value left over, claiming this un-deducted value is commonly referred to as ‘scrapping’. Scrapping value is essentially the un-claimed or un-deducted depreciable value of an asset at the time of removal. The scrapping value is calculated as follows: Scrapping value = original depreciable value – deducted value to date For example, if the original value of an asset or part of a building was $8,000, and $6,000 was claimed by the time of the asset’s disposal, the ‘scrapping value’ or part of a building would be $2,000 (assuming no amount is received on disposal). The owner could then claim the $2,000 as an instant tax deduction in the same financial year as removal. It’s important to talk to a quantity surveyor before removing any items so they can capture the assets available for capital works or plant and equipment depreciation deductions. Renovations completed by a previous owner Many older properties have had renovations completed by previous owners, these works are often qualifying and can be claimed by current owners. For instance, if a property was built in 1979 but renovations were completed in 1993 the capital works for the renovation […]

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Office renovation depreciation – case study and tax benefits

BMT team — Tue, 19 Apr 2022 06:54:06 +0000

With ‘working from home’ arrangements more commonplace since the start of the pandemic and social distancing now the norm, many businesses have recently altered their office layouts. Office renovation depreciation has always offered lucrative tax deductions. But since temporary tax depreciation incentives were introduced, office renovation has become even more attractive for the businesses that occupy them. In this post we discuss what’s happened in the office sector since the onset of the pandemic and look at an office renovation depreciation case study. Contents: Demand for office space since the pandemic Office renovation depreciation case study Demand for office space since the pandemic Since early 2020, companies have been faced with the incredible challenge of shifting their office-based employees to working from home arrangements, to adhere to state-mandated COVID-19 rules put in place to protect peoples’ health. Lockdowns and work from home orders lasted for months in some states, resulting in a great deal of office space going unused for prolonged periods. Many people held the expectation that more businesses would continue to employ either a full or hybrid working from home model, leading them to think that ongoing demand for office space would be lower than pre-pandemic. And while there was a sharp drop in demand initially, what is interesting is that demand for office space has rebounded, despite working from home arrangements still being in place for many businesses. Ken Morrison, Chief Executive of Property Council of Australia, said “While aggregate vacancy levels have risen slightly from 11.9 per cent to 12.1 per cent, the driver of this has been new supply of office space, not a drop in demand. The reality is that most CBD businesses continue to see the office as integral to their future, and that is reflected in the increased demand for office space over the past six months.” So, what is driving this demand? It appears that many businesses are not just growing in staff numbers but are needing more space to accommodate for social distancing measures, even in those businesses where employees work remotely for part of the week. While we can’t predict how long this will continue, we can rely upon the lucrative depreciation deductions available on office buildings and fit outs. Depreciation case study ‘Business A’ is a medium-sized business entity. It leases office space occupying a partial floor of a Sydney office tower. The space was originally fitted out in 2018 (prior to the COVID-19 pandemic) and is now going to be expanded to accommodate larger collaborative workspaces, social distancing and future growth in head count. The following table demonstrates the depreciation deductions available for the owner of the property (the landlord) and the business operating from it (Business A, the lessee). These deductions provide a healthy boost to cash flow for both Business A and the landlord. Note the large boost in deductions for Business A in year five, which takes into account the instant asset write-off for some of the new fit out. Some of the larger immediate deductions available to Business A from the Year 5 expansion include $60,000 for computer equipment, $33,000 for floor coverings and $14,000 for desks. Meanwhile, the landlord can continue to claim capital works deductions and plant and equipment depreciation on items such as air conditioning, lighting, switchboards and automatic doors. Tax depreciation schedules are key to claiming the maximum depreciation deductions. A BMT Tax Depreciation Schedule ensures commercial depreciation deductions are claimed to their full potential and compliantly by applying all industry-specific legislation. BMT also adopts current business incentives including the backing business investment and temporary full expensing depending on the business size, to ensure every cent is claimed. BMT Tax Depreciation has optimised its commercial process to ensure both owners and tenants claim the most deductions possible. To learn more about commercial depreciation of offices, call BMT today on 1300 728 726 or Request a Quote.

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Top 6 investment property renovation tips

BMT team — Sun, 06 Feb 2022 21:56:27 +0000

The warmer months are upon us which has some of us thinking about giving our investment properties a facelift. Whether it’s a fresh paint job, flooring or a new bathroom, renovating your investment property can result in higher returns for years to come. Not only does a freshly renovated property attract quality tenants, it also puts more back in your pocket with ample depreciation deductions at your disposal. The essential step to any investment property renovation is taking a head over heart approach. Here are our top 6 investment property renovation tips to maximise your returns. Tip 1: Know your market and budget Tip 2: Be aware of 2017 legislation changes Tip 3: Understand the effective lives of assets Tip 4: Learn about depreciation incentives prior to renovating Tip 5: Take advantage of the longevity of capital works deductions Tip 6: Don’t forget about scrapping deductions Tip 1: Know your market and budget The golden rule to any investment property renovation is to know your market, know your budget. It’s important to remember here that you’re renovating the property directly for returns and tenant appeal, not your personal preference. It goes without saying, but you don’t want to spend outside your budget as this can have detrimental impacts to your cash flow. At the same time, you want to ensure the property renovation is suited to your market. For example, if your target market is professional singles or couples, you may not want to reduce the size of living areas for an extra bedroom. Meanwhile, removing a bath tub won’t be the right choice if your market is families with children. Tip 2: Be aware of 2017 legislation changes When it comes to claiming the most depreciation possible following an investment property renovation, 2017 legislation changes are important to be aware of. Under the changes, ‘previously-used’ plant and equipment assets can’t be depreciated. Plant and equipment assets are mechanical or easily removable in nature. Some key examples include floor coverings, hot waters systems, air conditioning units and light fixtures and fittings. The key factor to be aware of when it comes to linking the legislation changes with your renovation is the ‘previously-used’ provision. This means that any second-hand plant and equipment assets you install during the renovation can’t be depreciated. It may seem easier to stay at the property while the renovation is taking place so you’re close to the action but doing so can have harmful impacts to your future depreciation deductions. The previously-used provisions also apply to brand-new assets you installed during the renovation if you lived in the property at the same time, even for a short period. For this reason, it’s always recommended to never stay at your investment property during a renovation. Tip 3: Understand the effective lives of assets Every type of plant and equipment asset has its own effective life. This determines how much in depreciation deductions you can claim in each year. A key example of how important the effective lives of assets can be when renovating is in flooring. As one of the most renovated assets, depreciation deductions can vary greatly depending on flooring type. Carpet has an effective life of eight years, while floating timber flooring has an effective life of fifteen years. This means you will be able to claim more from carpet in earlier years as it depreciates sooner, while floating timber would result in a steadier flow of deductions over the long-term. Meanwhile, tiles are considered to be part of the building and therefore claimed over forty years at a low rate of 2.5 per cent. For example, $2,000 worth of carpet would be a first full year claim of $500. The same amount of floating timber would be a first full year claim of $266 and tiles would be $50. Tip 4: Learn about depreciation incentives prior to renovating There are several depreciation incentives available that can boost your cash further and sooner following a renovation. Being aware of these can help you choose assets that will compliment your returns. The first is the immediate deduction. This incentive allows you to immediately deduct any new, eligible plant and equipment asset that costs $300 or less. There is no limit to the number of assets that can be deducted, as long as they meet the given eligibility requirements. We have seen this humble deduction boost cash flow by thousands in just one year. The second incentive is the low-value pool. Plant and equipment assets that cost or are valued at $1,000 or less can be placed in the pool. Once an eligible asset is placed in the low-value pool, depreciation deductions are fast-tracked. In the year of purchase, depreciation is calculated at an increased rate of 18.75 per cent. During following years, the rate is heightened further to 37.5 per cent. Tip 5: Take advantage of the longevity of capital works deductions We have provided several tips on making the most out of plant and equipment assets following a renovation, but it’s just as important to exploit capital works following a renovation. Capital works is the structural component of the investment property. If you build a wall, tile the bathroom or install new kitchen benchtops you are doing a capital improvement. These can be deducted with capital works deductions for a forty-year period. On average, we find capital works make up 85 to 90 per cent of total depreciation claims! So its important to ensure you factor in any capital improvement you may be weighing up during your renovation. Tip 6: Don’t forget about scrapping deductions The new assets aren’t the only ones you can benefit from following your investment property renovation. The qualifying assets you removed in the process can also boost your cash flow. A process called scrapping allows you to claim the un-deducted depreciable amount from removed assets. ‘Scrapped’ deductions can be claimed on plant and equipment, in addition to structural assets . While it seems straight forward, we […]

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Do you know how to depreciate rental property improvements correctly?

BMT team — Thu, 18 Nov 2021 22:35:23 +0000

Making improvements is all part of owning a property, whether it be a home or an investment. The difference with making an improvement to an investment property is that it can result in higher rental returns and depreciation deductions. But do you know how to depreciate rental property improvements? And what is involved in doing so? Understanding difference between improvement and repair Before we get into the nitty-gritty of how to depreciate rental property improvements, it’s imperative to understand the difference between improvements and repairs as they are claimed differently. An improvement is improving beyond what was there to start with, while a repair is bringing back what was there. A repair can be claimed as an instant deduction while an improvement must be depreciated. Differentiating between the two is considered on a case-by-case basis and an accountant will look at a number of factors such as the asset installed, what was there before, the costs and the reasoning for the repair or improvement. For example, replacing linoleum flooring with brand-new carpet would be considered an improvement as you’re replacing the previous asset with a new, higher quality one. But if you instead just replaced part of the linoleum floor with similar flooring it could be classed as a repair. How to depreciate rental property improvements How this is done depends on the type of improvement and what category of depreciation the improvement, or parts of it, fall under. If the improvement is structural in nature or involves installing fixed assets like kitchen benchtops, tiles and doorknobs, then it needs to be depreciated using capital works deductions. Capital works depreciate at a rate of 2.5 per cent per year for residential properties. This means a capital works renovation can produce valuable depreciation deductions for forty years. But if the improvement includes easily removable or mechanical assets, then plant and equipment depreciation deductions must be used. These work differently as every plant and equipment asset has a designated effective life, so they depreciate at different rates based on the depreciable lifetime they are given. Before any renovation an investor must remember that there are 2017 legislation changes in place that impact depreciation available on plant and equipment assets. It means that any second-hand plant and equipment asset purchased and installed after 9 May 2017 are ineligible for depreciation. Therefore, those looking to take full advantage of depreciation should avoid installing a second-hand plant and equipment asset during a renovation. Some plant and equipment assets may also qualify for special incentives. One of these is the immediate write-off, where new assets that cost less than $300 can be claimed as an instant tax deduction rather than depreciated over time. The second incentive on offer is the low-value pool. This allows new assets that are installed during an improvement to be depreciated at an accelerated rate if they are valued at less than $1,000. It’s also important to remember that anything removed during a renovation can be ‘scrapped’. This means any undeducted depreciable value of a removed asset or structure can be claimed as an instant deduction in the same financial year. Now that we know how an improvement depreciates, how can it be claimed as a tax deduction? The key to claiming this depreciation on property improvements is to use a tax depreciation schedule. This essential report outlines every single depreciation deduction claimable from the rental property. An accountant uses this schedule at tax time each year to determine the depreciation deduction to reduce the financial year’s taxable income. What happens if an improvement is made after a tax depreciation schedule has already been prepared? Rental property improvements are made for a variety of reasons. One could be made due to damage or damage prevention, or simply a renovation to improve the rental return of the property. Whatever the case, the good news for investors that have an existing schedule with BMT is that it’s easy to make amendments to a current schedule to ensure the improvement and its assets are included. Now that you know how to depreciate rental property improvements and what’s needed to do so, contact BMT today on 1300 728 726 or Request a Quote.

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Cosmetic or substantial renovation? Tax implications

BMT team — Tue, 29 Oct 2019 22:09:51 +0000

Australian property investors are increasingly undertaking both substantial and cosmetic renovations to increase property values. Renovations were up 11 per cent this year according to Master Builders Australia, with chief economist Shane Garrett stating, “Australia’s home renovations sector enjoyed its busiest quarter in 14 years during the three months to September 2018”. Let’s look at the difference between a substantial renovation and a cosmetic renovation and the tax implications for owners of investment properties. In this article we will answer: What is a substantial renovation? What is a cosmetic renovation? What are the rules affecting second-hand property owners? What is a substantial renovation? According to the Australian Taxation Office (ATO), substantial renovations occur where ‘all, or substantially all, of a building is removed or is replaced’. This includes removing or replacing ‘foundations, external walls, interior supporting walls, floors, roof or staircases’. When combined, these would directly affect most rooms within a property. If you’re undertaking any structural work that requires building approval, or moving doors and walls, the renovations would likely be categorised as structural in nature. If a property was substantially renovated by previous owners prior to selling and renovations remained unused, property investors can claim depreciation on the new plant and equipment assets installed by the previous owner, as well as any newly installed or qualifying capital works deductions available. With substantial renovations, the following applies: Investors who do not live in the property during renovations can claim on work they complete themselves Investors can claim on capital works renovations Investors can claim on existing plant and equipment installed by the previous owner Investors who live in the property while renovating can only claim on capital works improvements once the property is income producing What is a cosmetic renovation? Cosmetic renovations are generally visual in nature and more cost effective than their structural counterparts. Examples of cosmetic renovations can include painting, patching up minor wall cracks, adding new carpet, replacing hardware like door handles, adding a letterbox to the front of a house or changing light fittings. Undertaking a cosmetic renovation is a good way to improve a property without incurring the expense of undertaking a substantial renovation, but it’s important to understand the differences and know what you can claim. With cosmetic renovations, the following applies: Investors who do not live in the property during renovations can claim on work they complete themselves Investors can claim on capital works renovations Investors can’t claim on existing plant and equipment installed by the previous owner Investors who live in the property while renovating can only claim on capital works improvements once the property is income producing What are the rules affecting second-hand property owners? Following depreciation legislation changes in 2017, restrictions have affected the ability of property investors to claim tax depreciation deductions on previously used plant and equipment assets. Second-hand residential properties purchased after 7:30pm on the 9th May 2017 are not able to claim depreciation deductions for existing plant and equipment assets as they are deemed by the ATO to have been ‘previously used’. There are some exceptions to this rule which include: Commercial properties which are unaffected New properties which have never been lived in Properties where contracts exchanged before 9 May 2017 and haven’t been lived in by the owner after 30 June 2017 Substantially renovated properties Most properties have had some work completed that a current owner can claim. It’s always worth contacting a specialist Quantity Surveyor to find out how much you’re entitled to. A BMT Tax Depreciation Schedule outlines all the deductions you can claim for your property. The schedule lasts for forty years and the fee is 100 per cent tax deductible. In the FY 2018-19, BMT found our clients an average of almost $9,000 in first-year tax deductions for all residential properties. For those with properties directly affected by the 2017 legislation changes, we still found an average of $5,641 in deductions per year. There are benefits in undertaking both substantial renovations and cosmetic renovations. Often the two will complement each other and add to the overall improvement of your property. Knowing what you can claim will ensure that you obtain the maximum depreciation deductions from your investment property. BMT staff can assist you in reviewing your current circumstances and provide a tax depreciation schedule that includes a forecast of eligible depreciation claims. For a free assessment of your property, speak with one of our expert team on 1300 728 726 or Request a Quote online. To learn more, read Are home renovations tax deductible?

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Home and contents insurance you need for your investment property

BMT team — Fri, 18 Oct 2019 00:17:14 +0000

Do you have the right level of insurance cover for your investment property? Both under and over insurance can impact your finances, leaving you unnecessarily out of pocket. Under-insuring puts your investment property at risk; if is destroyed or damaged you won’t have enough money to cover the cost of rebuilding or repairing. Over-insuring means you are paying more in premiums than you need to, reducing funds that could be better spent or invested elsewhere. The Insurance Council of Australia (ICA) commissioned Quantum Market Research to undertake a national survey of over 1,000 Australians in 2014 and found 83 per cent don’t have enough insurance cover to allow them to continue with the same standard of living. Protect your investment property and the assets within it by understanding the different types of insurance and what they cover. In this article we will look at: Building insurance Contents insurance Landlord insurance Building insurance Building insurance is designed to cover repair and replacement costs to the structure of your investment property from unexpected events such as accidental damage, fire, storms, earthquakes and floods. It usually provides protection for areas including fences, gates, garages, sheds, pipes, cables, drains and solar panels. The potential financial risks for owners of investment properties without building insurance is high. With one in 25 homeowners surveyed not having building insurance, ensure you’re protected with the right level of cover. With access to construction cost data and a range of insurers and policies, BMT Insurance can estimate the replacement cost of your property to help find you the most cost-effective insurance cover to meet your needs. The BMT Replacement Cost Estimator uses our construction cost data to provide a guide on estimated replacement costs. Contents insurance Contents insurance provides coverage for damage to, or loss of, personal possessions located within your home. A key finding of the ICA survey showed that 77 per cent of homeowners don’t seek professional valuation of their possessions. Instead they assess the value themselves. This means they may not have enough cover for their possessions. Alternatively, they may be paying premiums in excess of what they need. The survey also found one in four Australians don’t know what’s covered in their home and contents insurance policy. Landlord insurance Landlord insurance is designed to protect landlords against the risks associated with renting a property out. It can cover: loss of rental income loss or damage to building and contents malicious damage accidental damage theft or burglary by tenants legal expenses incurred when evicting a tenant. As it’s an investment expense, landlord insurance can also be claimed in your tax return. Read more about landlord insurance and what it covers. BMT can tailor an insurance package to suit your needs. If you don’t already have insurance or you’re unsure if your insurance is adequate for your investment property, contact BMT Insurance online or call our expert team on 1300 728 726 today. The information provided is general in nature and does not constitute personal advice. This means that whilst we may generally recommend the products we arrange on your behalf, we do not consider whether the product is appropriate for your own personal objectives, financial situation and needs in making the recommendation. You will need to consider the appropriateness of any information or general advice given, having regard to your personal situation, before acting on the above.

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Are home renovations tax deductible?

BMT team — Fri, 11 Oct 2019 03:07:49 +0000

More and more property investors are seeking to improve capital values and increase rental income by renovating their properties, rather than purchasing anew. While most investors are aware renovations can increase rental income and boost cash flow, many renovators are missing out on thousands of dollars by failing to claim depreciation deductions. In this article we will explore: Are home renovations tax deductible? What is scrapping? Important legislation for property investors Home renovation case study Are home renovations tax deductible? Most residential properties have significant depreciable value, which can be claimed prior to and after home renovations are completed. The Australian Taxation Office (ATO) allows owners of income-producing properties to claim depreciation deductions for the natural wear and tear that occurs to a building and its assets over time. Depreciation can be claimed for a building’s structure via capital works deductions and for the plant and equipment assets contained within the property. While capital works can be claimed in both new and old residential property, plant and equipment deductions are limited to new property. This can affect what can and can’t be claimed when renovating. Regardless of the age of the property, it’s important to speak with a specialist Quantity Surveyor before completing any work. There may be substantial depreciation deductions available for any structural elements being removed during the renovation process. This is known as scrapping. What is scrapping? Scrapping allows you to claim depreciation deductions for the residual value of removed assets in the year the items are removed. To take advantage of deductions for scrapped assets, a depreciation schedule must be arranged both before and after the renovation takes place. The pre-renovation depreciation schedule will detail asset values and can act as evidence in the event of an Australian Taxation Office audit. Once the renovation has been undertaken, a Quantity Surveyor will compile an itemised schedule detailing the depreciation deductions available for the brand-new plant and equipment assets and capital improvements. The depreciation schedule will also show the undeducted value of the removed structural assets. Important legislation for property investors Investors who purchase second-hand residential property after 7:30pm on the 9th of May 2017 are not able to claim scrapping deductions for existing plant and equipment assets. If you exchanged contracts prior to this date, you should discuss your eligibility with a Quantity Surveyor for any residual depreciation that may apply. If you live in your rental property while renovating, any newly installed assets will also be classed as previously used. As a result, you’ll be at risk of losing your tax benefits. Unless there is good reason, investors who are planning on installing new plant and equipment assets should make these additions once the property has been listed for rent. This will ensure you are eligible to claim the maximum depreciation deductions available. Home renovation case study Jonathan purchased a ten year old two-bedroom house after 7:30pm on the 9th of May 2017. After renting his property out for a year, he decides to renovate the bathroom. According to current legislation passed in November 2017, he is ineligible to claim scrapping deductions for existing plant and equipment assets. Capital works deductions for structural assets such as tiles, bathtubs, toilets, sinks and basins are unaffected by the legislation changes and can still be claimed. These deductions typically make up 85-90 per cent of a total depreciation claim. Jonathan arranged a property depreciation schedule when he originally purchased the property. After hearing about the additional deductions available when renovating from his accountant, Jonathan contacted a Quantity Surveyor before starting work to find out more. Jonathan found he was able to use his existing depreciation schedule to work out the un-deducted value of structural assets to be removed during the renovation. The table below outlines the deductions Jonathan could claim for the removed structural assets as well as any capital improvements made during the renovation. After renovations, Jonathan was able to claim $7,830 in scrapping deductions and $333 in capital improvement deductions. Combined, this totals more than $8,000 in depreciation deductions in the first full financial year. He was able to maximise the depreciation deductions on his investment property both before and after the renovation. To maximise depreciation deductions during home renovations, consult with a specialist Quantity Surveyor before getting started.

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Lucrative assets to install when renovating

BMT team — Thu, 29 Aug 2019 01:55:17 +0000

A growing number of investors are choosing to renovate their investment properties each year. Master Builders Australia has forecast homeowners and investors will spend $8.8 billion annually on renovations over the next five years. Renovations can increase rental yields and improve cash flow however there are many important factors to consider before getting started. One of the most crucial aspects to consider is the effective life of depreciating assets. In this article we will look at: The effective life of depreciating assets Effective life of depreciating assets for flooring Effective life of depreciating assets for window covers Important depreciation legislation The effective life of depreciating assets Plant and equipment assets are items which are easily removable from the property such as carpet, hot water systems and blinds. The effective life is used to work out the asset’s decline in value for which a depreciation deduction can be claimed. Each asset also has a rate of depreciation which helps to determine the deductions an investor can claim over the asset’s effective life. Investors can claim depreciation deductions for more than 6,000 different assets recognised by the Australian Taxation Office. With so many assets to choose from, it’s important to understand how variations in effective life can alter the depreciation deductions available. We look at flooring, window covers and lighting to help you choose the most valuable assets when renovating your investment property. Effective life of depreciating assets for flooring Carpet has an effective life of eight years. Using the Diminishing Value (DV) method, a rate of 25 per cent is used. If a landlord installs carpet worth $4,000, they will be eligible to claim $1,000 in depreciation deductions in the first full financial year. However, if they install floating floorboards or tiles of the same value, the available deductions will be $533 and $100 respectively. In this scenario, an investor who installs carpet will be able to claim the highest depreciation deduction, while the investor who installs tiles will be eligible for the least. Effective life of depreciating assets for window covers Blinds have an effective life of ten years and a DV rate of 20 per cent. If a landlord purchases blinds worth $3,000, they will be eligible to claim $600 in depreciation deductions in the first full year. If they install curtains of the same value, the first-year claim would increase to almost $1,000. On the other hand, if the landlord decides to purchase plantation shutters, which have an effective life of forty years and a DV rate of 2.5 per cent, the first year deduction would be just $75. With this in mind, curtains are the most valuable asset from a tax perspective. It’s important to note that blinds and curtains may be eligible for low-value pooling. Low-value pooling is a method of depreciating plant and equipment assets which have a value of less than $1,000. Any plant and equipment assets with a value of less than $1,000 can be included in a low-value pool and written off at an accelerated rate to maximise deductions. Items can be depreciated at 18.75 per cent in the first year and 37.5 per cent each year thereafter. Important depreciation legislation It’s important to note that legislation passed in November 2017 brought about major changes to residential plant and equipment depreciation claims. Under current legislation, owners of second-hand residential properties who exchanged contracts after 7:30pm on 9th May 2017 cannot claim deductions for previously used plant or equipment assets. If an investor lives in their rental property while renovating, any newly installed assets will be classed as previously used. Therefore, the investor is potentially risking their tax benefits. Unless there is good reason, investors who are planning on installing new plant and equipment assets should make these additions after they move out of the property and it has been listed for rent. The 2017 legislation does not affect buyers of brand-new property, residential properties considered to be substantially renovated or commercial properties. With this in mind, brand-new property generally holds the most lucrative value for investors from a tax perspective. Capital works deductions for structural assets such as new walls, kitchen cupboards, toilets and roof tiles are also unaffected by the legislation changes and can still be claimed by owners of income-producing properties. When removing structural assets there may be remaining depreciation deductions available. A process known as scrapping can often be applied, allowing investors to claim these deductions in the year the items are removed. To find out more, contact a specialist quantity surveyor to organise a tax depreciation schedule before starting renovations.

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