Understanding tax depreciation can provide great benefits to Property Managers when discussing their clients’ investment property scenario.
By learning about tax depreciation and how property investors can claim it, they will assist their clients to reduce their taxable income and improve cash flows. This can help Property Managers to be seen as a crucial touch point for reliable information and a trusted resource property investors feel they can approach time and time again.
Amanda, a Principal and Licensee from NSW with around 700 rental properties under management, agrees.
“By discussing ways to maximise cash flows from the property, rather than just helping clients to achieve the best rent, such as by using depreciation schedules, you can create customers for life from the savings they receive,” says Amanda.
To help explain property depreciation, below are some key facts for Property Managers to help guide clients on their investment journey and ensure they achieve the best possible results.
What is tax depreciation?
Buildings and their contents that are used for income producing purposes are eligible to be depreciated. Similar to capital assets owned and used for income producing purposes, such as machinery, which can be depreciated over time.
The Australian Taxation Office (ATO) allows owners of income producing properties to claim this depreciation as a tax deduction. Unlike other deductions, such as interest on a loan where you need to outlay money in order to make a claim, depreciation is considered a non-cash tax deduction.
Who can claim tax depreciation?
All types of income producing properties have substantial taxation benefits. The owners of both new and older properties can claim depreciation benefits which helps them to reduce their tax liability.
A common myth is that older properties will attract no claim – which is untrue. It is worth making an enquiry about any property, regardless of its age.
Read More: Claim More From Older Properties
When an investor hasn’t been claiming or maximising their depreciation, the two previous financial years’ tax returns can be amended and in some instances the ATO may be required to return additional money back to the investor in the form of additional tax returns.
What is a tax depreciation schedule and what does it contain?
To ensure an investor’s claims are maximised, it is important to encourage them to seek advice from a specialist Quantity Surveyor.
A comprehensive depreciation schedule will outline all the depreciation which can be claimed for both the original building structure, any structural additions which may have occurred during a renovation (even those completed by previous owners) and the plant and equipment assets contained inside the property.
As part of the process of arranging a schedule, a detailed site inspection will be performed. During this inspection the necessary measurements will be taken and all assets will be photographed to ensure no items are missed and deductions are maximised accordingly.
Below is a list of what to expect in a BMT Tax Depreciation Schedule:
- Both prime cost and diminishing value method deductions for plant and equipment assets
- A forty year projection of deductions available for the life of the property
- Accelerated deductions through low-value and low-cost pooling
- The effective life of each asset and a total for the division 40 effective life and pooled assets
- Pro-rata calculations for properties acquired part way through a financial year or rented for only a percentage of the year
- Percentage based grouping of assets showing calculations and totals
- Split reports are available for properties owned by more than one person, resulting in higher deductions earlier
- Excel and CSV formats for residential properties are available for Accountants, making the schedule easy to use and update with software programs
What do we provide to help you educate clients about tax depreciation?
We provide a range of additional free services to assist Property Managers such as:
- Educational training sessions on depreciation either face to face or via webinar. In these sessions we cover a range of frequently asked questions and explain how claiming deductions will help your clients
- Speakers at your next event or investor night. We will provide an engaging and knowledgeable presentation on depreciation to explain the cash flow benefits directly to your clients
- Articles for newsletters and publications which explain depreciation in an easy to understand way
- Co-branded tools and brochures such as our tax depreciation calculator which provides a depreciation estimate for any property. We can also provide printed materials for your office.
For more information about tax depreciation or any of the valued services we offer, visit our Real Estate professionals page or speak to one of our expert staff today on 1300 728 726.