» Accountants

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 […]

The post The capital gains tax implications of inheriting an investment property appeared first on .

TR 97/23 – Repairs and maintenance vs capital improvements

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

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

The post TR 97/23 – Repairs and maintenance vs capital improvements appeared first on .

Substantial, cosmetic renovations and the depreciation landscape

BMT team — Tue, 09 Feb 2021 00:28:19 +0000

Investment property renovations hold the potential not just to improve rental returns and attract quality tenants, but to boost cash flow by tens of thousands of dollars in just a few short years. This is because investment property renovations can make significant changes to the future depreciation claims available from the property. In this article we will examine: Substantial versus cosmetic renovations Substantial renovations in the depreciation landscape Common questions we receive from investors Substantial versus cosmetic renovations In all our work, we define a substantial renovation using the Australian Taxation Office’s (ATO) definition of substantial renovations: “In which all, or substantially all, of a building is removed or replaced. However, the renovations need not involve removal or replacement of foundations, external walls, interior supporting walls, floors, roof or staircases”. In contrast, cosmetic renovations are generally visual in nature or focus on a specific area of the property. Common examples include painting walls, replacing window coverings and completing a kitchen renovation. Depreciating cosmetic renovations can provide significant boosts to cash flow but it’s key to ensure they are identified correctly. All too often, investors mistakenly report cosmetic improvements following damage and don’t claim them as repairs or maintenance – meaning they are potentially missing out on an immediate deduction. Substantial renovations in the depreciation landscape Substantial renovations have the ability to boost the investor’s eligibility for thousands in depreciation deductions. Once any renovation has been completed, depreciation deductions can be claimed on eligible capital works, new plant and equipment assets and the un-deducted value of removed assets by the current owner. When an investor purchases an unused property directly after it has been substantially renovated, they can also still claim all eligible capital works and the plant and equipment assets. This is despite the fact that the property is technically second hand. Throughout the BMT process we ensure that every substantial renovation is identified, the schedule reflects improvements made, and legislative requirements are met to maintain claim compliance. Especially relating to the 2017 depreciation amendments under Section 40-27 of the ITAA97. Common questions we receive from investors A tax depreciation schedule should always be completed following a substantial renovation. Here are some common questions we receive prior to preparing these types of schedules. Q. I am completing an extensive renovation on my property, but how do I know if it is classed as substantial? As a general rule of thumb, any complete structural renovation that requires building approval usually falls under the ‘substantially renovated’ category. If most of the building will be removed and replaced, leaving behind the structural component, the renovation will usually be substantial. Q. My investment property kitchen was substantially renovated but the rest of the property remained unchanged. Can I still claim all plant and equipment deductions? If you replaced the kitchen yourself the answer is yes. But if you purchased the investment property after the renovation, no. Only substantially renovating part of a property while the majority remains unchanged doesn’t support the ATO’s requirements of substantial renovations. However, it is usually worthwhile to have the property’s tax deprecation schedule assessed to see if there are any qualifying assets or structure. BMT Tax Depreciation will do this assessment free of charge before starting any work. We all have a role to play when educating investors about the benefits of depreciating property and how it can boost their cash flows. To learn more about how we partner with accountants Australia wide, visit our accountants information page.

The post Substantial, cosmetic renovations and the depreciation landscape appeared first on .

Split schedules continue to maximise deductions

BMT team — Tue, 09 Feb 2021 00:22:29 +0000

Investment strategies can be diverse and when the market tightens, some investors partner up to get their foot on the property ladder. Not only does this mean upfront expenses are divided between multiple people, but it also means ongoing expenses are more affordable while apportioned deductions can also be claimed. Jointly-owned investment properties are unique and require the parties to work together to maximise their return on investment. A correctly split tax depreciation schedule will help. In this article we will look at: Why split schedules are important How we do it The difference – with and without a split schedule Why split schedules are important A tax depreciation schedule for a jointly-owned investment property provides deductions based on each owner’s ownership interest. Whether the ownership split is 50:50, 40:30:30 or 60:20:20, split schedules can maximise depreciation deductions for all parties involved. We often see split schedules result in more assets qualifying for the immediate deductions or low-value pool sooner. Additionally, split schedules are an essential tool to ensuring that all depreciation deductions are claimed with 100 per cent compliance. How we do it The process of preparing an accurate tax depreciation schedule is crucial to splitting deductions appropriately. By completing a physical site inspection of the property, identifying every depreciable component available and determining the depreciable value, the pro-rata splitting can be applied. On surface level, the BMT process of completing split schedules is the same as individually-owned property schedules. However, our well-established quality assurance process allows us to split the schedules so that each owner has their own amount to claim based on their portion owned and interest in the particular asset. The difference – with and without a split schedule Dale and Kate own an investment property together. They are classed as joint tenants, with a 50:50 ownership interest. They completed a small kitchen renovation on the property. This included capital improvements and installation of new appliances. A dishwasher and freestanding stove were installed during the renovation. The below demonstrates how much they boosted their deductions sooner with a split schedule on these two assets alone. By using a split depreciation schedule, Dale and Kate could place their stove in their low-value pools. It was also possible to claim the new dishwasher in full in the same financial year with the immediate deduction. For more information on our services and how we work with you to ensure your clients claim maximised and compliant depreciation deductions, visit our website or call our specialist team on 1300 728 726.

The post Split schedules continue to maximise deductions appeared first on .

Pooling, immediate deductions and depreciation schedules

BMT team — Tue, 09 Feb 2021 00:08:43 +0000

The Australian Government moved swiftly to offer businesses and homeowner occupiers financial relief in the early stages of the COVID-19 pandemic yet fell short of making meaningful policy changes for investment property owners. This left many feeling that they had received the short straw. These feelings may be valid, but it’s important to remember that well-established depreciation incentives already exist for residential property investors. They relate exclusively to plant and equipment assets and can boost cash flow by maximising tax deductions. In this article we will review: Immediate deductions Ensuring all immediate deductions are compliant Low-value pooling, low-value vs low-cost Low-value pooling and immediate deductions and strata properties Immediate deductions The ‘immediate deduction’ is a straight-forward incentive for residential property investors. It allows them to immediately deduct any asset that costs $300 or less. Since the immediate deduction rule came into effect in 2001, some assets commonly seen at BMT under this category include light fittings, security cameras, exhaust fans, small appliances and furniture. Ensuring all immediate deductions are compliant Assessing the eligibility of claiming the immediate deduction of assets is part of preparing a tax depreciation schedule. When analysing a property through physical site inspections and relevant documentation, we ensure all immediate deduction tests are met. Here is an overview of each step with common scenarios we see. $300 or less An asset’s cost must always be under the $300 threshold. However, assets over the threshold that are owned by multiple investors may entitle some to claim the immediate deductions. For example, if two investors owned equal shares in a rental (50:50) and purchased a ceiling fan worth $500 both could claim the immediate deduction. This is because each investor owns a 50 per cent portion of the asset, coming to $250. Not part of a set Assets that are part of a set aren’t eligible for the immediate deduction. This is always determined on a case-by-case basis and assets may be deemed as a set if they are either: Interdependent on each other Marketed as a set Designed and intended for use together. Common examples of sets include a bed ensemble where the total for the base and mattress is over $300, or a dining table and chairs where the combined total of the parts is over $300. Substantially identical Assets deemed as substantially identical can’t be claimed as immediate deductions. If a group of assets are deemed as substantially identical but the total cost of the group is under $300, the investor could claim the immediate deduction. When conducting a site inspection, we factor in the make, model, colour, shape, function, brand, design, texture and composition of each asset to conclude if it meets this test. Substantially identical assets would also need to be purchased in the same financial year. Some examples would include five identical bar stools that are $100 each or four sets of window blinds worth $200 each. Non-business use Assets eligible for this particular immediate deduction must be used for the purpose of producing assessable income that is not income from carrying on a business. While assets in residential properties often meet this test, there are some unique scenarios where they may not. There are other rules that will apply to the immediate write-off associated with business assets Low-value pooling, low-value vs low-cost Many assets we find that aren’t eligible for the immediate deduction are placed in the low-value pool. Allocating assets to the low-value pool is key for investors to accelerate deductions in the earlier years of ownership. Both low-value and low-cost assets falling under the $1,000 threshold can be allocated to the pool. For example, a piece of furniture worth $300 which isn’t eligible for the immediate deduction as it’s deemed as substantially identical, could instead be placed in the pool. Low-value pooling and immediate deductions and strata properties When completing a tax depreciation schedule, we identify the portion of available depreciable value of common property assets using pro-rata calculations based on the investor’s unit entitlement of common areas of the property. This results in many common property assets being classed as an immediate deduction for the owner or placed in the low-value pool in the first or second year. Let’s use an example of an apartment complex with gym that holds a treadmill worth $1,000 and an individual investor has a unit entitlement of 1:5 from the strata plan. The depreciable value dedicated to the treadmill for this specific owner would be $200 and they can claim it as an immediate deduction. A comprehensive BMT Tax Depreciation Schedule ensures every incentive is compliant and claimed appropriately to allow a cash boost in the earlier years of ownership. To read more about our schedules and the BMT difference, visit our website or call the team on 1300 728 726.

The post Pooling, immediate deductions and depreciation schedules appeared first on .

Commercial tenant vs owner – how we ensure claims are accurate and compliant

BMT team — Tue, 09 Feb 2021 00:00:51 +0000

Commercial depreciation deductions can boost cash flows by thousands, hundreds of thousands, or even millions of dollars over the lifetime of a commercial premises. Given that both commercial owners and tenants of the one property can claim depreciation, making sure assets are split up accurately can be difficult. Newly available incentives also further complicate the scenario. The key to getting it right from the very beginning is a well-prepared tax depreciation schedule. In this article we will explore: Commercial tenant depreciation Getting the incentives right Maximising depreciation for commercial owners Commercial tenant depreciation Savvy commercial tenants, or business owners, can claim both capital works and plant and equipment depreciation on the fit-out and owned assets. Applying industry-specific legislation to the tax depreciation schedule is essential to accurately determining depreciation deductions for both tenant and owner. For example, the effective lives of the assets in a tenant’s fit-out can change based on the business it operates within. The table below shows how this works for just two assets across various industries. Getting the incentives right Incentives such as the simplified depreciation rules and temporary full expensing are available to most Australian businesses. Temporary full expensing has been a popular topic of discussion since its announcement in the last federal budget. At a high-level, temporary full expensing allows businesses to instantly deduct eligible plant and equipment assets purchased after 7:30pm on 6 October 2020 and 1 July 2023. However, the type of business and whether the asset is second-hand or brand-new affects full expensing eligibility. The table below demonstrates an example of how this can change the outcome. It’s important to note that the requirement of operating a business is key to this incentive. This means commercial landlords that lease the building without operating a business can’t take advantage of full expensing. Maximising depreciation for commercial owners Given that incentives such as temporary full expensing aren’t available to non-business commercial owners, the finer details are what boost their deductions. The capital works deductions available on the property’s structure and fixed assets is the first and often most significant part of a commercial owner’s depreciation claim. Plant and equipment deductions are usually also available for the owner. While these deductions are generally found in the tenant’s fit-out, some common plant and equipment assets held by commercial owners include hot water systems, lighting, fire protection equipment and carpet. BMT’s comprehensive approach Physical site inspections and applying industry-specific legislation are at the core of the preparation of BMT commercial tax depreciation schedules. During a site inspection, a specialist BMT site inspector will measure every inch of the property and identify all assets owned by tenant or owner. This key information is used to prepare and accurate, split schedule for all parties involved. To learn more about BMT’s commercial services and process, contact the team on 1300 728 726 or Request a Commercial Quote.

The post Commercial tenant vs owner – how we ensure claims are accurate and compliant appeared first on .

Depreciation and capital gains tax

BMT team — Mon, 02 Nov 2020 00:09:52 +0000

How depreciation affects capital gains tax (CGT) is a frequently asked question among investors. As an accountant, you know this answer isn’t always straightforward, and many variables can affect how much CGT is payable following a CGT event. Depreciation reduces a property’s cost base and can mean more CGT is payable. However, it is important to ensure that your investor clients know that despite this, depreciation is still well worth claiming. If you have a client questioning whether to claim depreciation, here are some facts they need to know. Discounts can apply CGT becomes more complicated for second-hand properties We aren’t fortune-tellers A dollar today is worth more than one tomorrow 1. Discounts can apply Many investors aren’t aware of CGT discounts and exemptions such as the 50 per cent discount, the main residence exemption, the 6-month rule and the 6-year rule. Being unaware of these discounts and exemptions at the start of their investment journey can result in many property investors opting out of claiming depreciation. Doing so can mean they miss out on thousands, often tens of thousands, in depreciation deductions. The 50 per cent CGT discount is especially beneficial to investors. Most property sales are more than twelve months after the purchase date. So, most would have the 50 per cent discount available, which further enhances the depreciation claim during ownership. 2. CGT becomes more complicated for second-hand properties The 2017 depreciation legislation changes mean some investors who own a second-hand rental property can’t claim depreciation on previously-used plant and equipment assets. A specialist quantity surveyor will include a capital loss schedule of ineligible plant and equipment assets. CGT Event K7 can be used to establish this capital loss in the year, even if the property wasn’t sold. Depending on the individuals scenario, CGT Event K7 can influence payable CGT, or have a nil effect. 3. We aren’t fortune-tellers None of us can predict the future, even with the most robust property investment strategy. We know that CGT is usually only payable on the capital gain made from the sale of an investment. Depending on the market and other economic factors, it’s possible that an investor could end up selling their property at an overall capital loss. While this isn’t ideal, CGT doesn’t apply in these situations. This means the investor could’ve claimed maximum depreciation deductions without paying CGT, but they missed out because they chose not to. An investor’s personal circumstances can change unexpectedly, too. If the property becomes the owner’s physical home prior to the sale, the main residence exemption, and other exemptions, could apply. They therefore could have missed out on claiming depreciation when the property was an investment. The key takeaway here is that investors shouldn’t decide whether they should claim depreciation on their fortune-telling knowhow. This especially applies to investment properties as they are usually a longer-term commitment. 4. A dollar today is worth more than one tomorrow Most of us wouldn’t decline a pay rise because it requires us to pay more tax. The same could be said for claiming depreciation and CGT. The cash flow depreciation provides throughout an investor’s ownership period far outweighs the difference it can make to CGT. This financial boost can help them on their investing journey and provides the opportunity to reinvest the cash into other sources of capital. Partner with the specialist and help educate your clients We all have a role to play when educating investors about the benefits of claiming depreciation. BMT Tax Depreciation is the specialist in the industry and ensures that every investor claims the most depreciation possible. The BMT guarantee means that if BMT can’t find double their fee in the first full financial year claim, there will be no charge for their services. This ensures that every BMT Tax Depreciation Schedule is worthwhile. Learn more about BMT and the free resources offered to accountants on the BMT Tax Depreciation accountants page.

The post Depreciation and capital gains tax appeared first on .

BMT Insights – the effective lives of depreciating assets

BMT team — Mon, 02 Nov 2020 00:03:29 +0000

We are all aware of the different factors that can affect how much an investor can claim in depreciation deductions. The two major points on this topic include the age of the property and whether it’s affected by the 2017 legislation changes. Surprisingly, the effective lives of assets aren’t usually discussed. Understanding the effective lives of assets is one thing that can help property investors claim more from their investment, while ensuring they are purchasing assets that align with their investment strategy. Effective life determination The Australian Taxation Office (ATO) has the final say on the effective lives of plant and equipment assets. This determines how long an investor can use the asset for taxable purposes, including claiming depreciation deductions. BMT insights – depreciation method vs effective life No matter the effective life of an asset, an investor will still have two options when deciding how to depreciate it. With over twenty years of experience, BMT has seen investors use the methods in different ways. One method is prime cost, which calculates deductions at a uniform rate. The second, and most popular method is diminishing value. This determines deductions at an accelerated rate based on the asset’s effective life. Using the diminishing value method means the investor gets higher deductions in earlier years of ownership. While the prime cost method may appear to be the best match for a long-term property investment strategy, it’s not always the chosen method. In fact, BMT insights reveal that the diminishing value is the most popular method as it results in higher deductions earlier when the investor has a larger fiscal outlay. Some investors also like to mix their depreciation methods up. For example, for their ‘big ticket’ plant and equipment assets, like air-conditioning units and floor coverings, they may choose to use the prime cost method as they will see substantial deductions each year, while lower value assets like furniture may be depreciated using the diminishing value method. The higher first-year deduction that the diminishing value method provides sometimes results in the asset being placed into the low-value pool in subsequent years. Investors can optimise their depreciation deductions by using the depreciation methods, low-value pool and immediate deduction. BMT insights – changes to effective life of assets BMT Tax Depreciation always analyses the tax rulings released each year to ensure depreciation can be claimed compliantly. The latest tax ruling saw some effective life changes to assets across certain commercial industries. Some of the common industries included in these tax rulings are manufacturing, the retail trade, mining and much more. The commercial landscape is constantly changing, and this is what triggers the changes to commercial asset effective lives. The same can’t be said for the residential market and it shows in the rarity of these changes. In fact, tax ruling 2019/5 was the first residential effective life change in 14 years. This change was made following BMT’s submission to the ATO that recommended some more practical effective lives to specified assets. BMT site inspections maximise claims BMT works with yourself and your investor clients to ensure deductions are maximised to their full potential. BMT continue to complete physical site inspections Australia wide to ensure that claims are tax office compliant and risks are minimised. Visit our accountants page to learn more about BMT and find free resources that you can share with your clients and team.

The post BMT Insights – the effective lives of depreciating assets appeared first on .

How to choose your Accountant

BMT team — Mon, 25 Feb 2019 04:58:55 +0000

One of the most important people to have on your property investment team is a trusted Accountant. An Accountant should keep you up to date with any tax changes that could impact you, offer tailored accounting and tax advice and help you to manage your tax liabilities. As Accountants play a vital role for investors, it’s important to choose the right person to join your investment team. Here are some helpful tips on how to choose your Accountant. Are they a property specialist? Choosing an Accountant who specialises in property will make life a lot easier if you own an investment property and have any difficult questions down the track. Accountants who specialise in property have a solid understanding of laws that impact your investment and ways you can claim all tax deductions that you are legally entitled to. Don’t be afraid to ask questions specific to your investment property. Importantly, ask the Accountant about depreciation. Accountants who specialise in property have a good understanding of the benefits of claiming depreciation and should refer you to a specialist Quantity Surveyor to maximise your depreciation claim. Are they registered? Investors should choose an experienced Accountant who is registered with an association such as CPA Australia or Chartered Accountants Australia and New Zealand (CA ANZ). This ensures a high standard of practice and knowledge. To complete your tax return, an Accountant must be registered with the Tax Practitioners Board (TPB). You can check their TPB registration here. In most cases, they must also have an Australian Financial Services (AFS) licence. Are they a good match? If you are satisfied the Accountant is sufficiently qualified and has the required knowledge to manage your investment property, ask yourself if they are a good match for you. It’s important to have a good working relationship with your Accountant as they form part of your investment team. If your personalities clash and it will be uncomfortable to work with them, they are not the right Accountant for you. Consider how quickly they respond to your calls and emails. Good customer service is a sign they will make your requests their priority in future. Do they go the extra mile? Accountants are highly skilled professionals who should be able to provide you with expert advice when buying a property. Specialist Accountants have a network of property professionals at their fingertips and should refer you to their contacts for further assistance.

The post How to choose your Accountant appeared first on .

Key things to consider when choosing a Tax Accountant

Chan Naylor Team — Tue, 20 Mar 2018 00:20:29 +0000

When you’re a property investor, it’s common to work with a number of experts during the time you hold your investment. It’s likely that one of these will be an Accountant. While hiring a Tax Accountant comes with a fee, this is often a small price to pay when you think about the unforeseen and hefty taxes they may help you avoid and the strategies they can put in place to help you get the most from your investment. While there are a lot of Accountants out there, you should do some preliminary groundwork to ensure you choose the right one for you. Firstly, check they have expertise in the areas relevant to you. Your Accountant should have a good deal of experience working with other clients in the same or a similar situation to yours. This means that the Accountant has worked on complex situations before and has already been exposed to a broader set of issues relevant to your situation. You should also know the number of years the Accountant has been in the field. Ideally, you’ll want them to have at least five years of experience doing individual tax returns. It is also better if your Accountant has a certified public accountant license, even if it isn’t necessarily required. There are many Accountants who do tax work even without special training in tax, so it is preferable that you choose one with more advanced training. Experience is good but a formal education is better as this may offer a broad perspective in individual, partnership, corporate and fiduciary tax. You should also make sure that your Accountant will stand by the tax return he or she prepares for you and represent you in case of an audit. With this, the Accountant should review your past tax returns at no extra charge. This only takes a few minutes and it will demonstrate his or her willingness to serve you. An Accountant typically charges by the hour and the rate varies by location and seniority. To help lower your fees, make sure you come to any meetings organised so you spend less time with your Accountant. Use a spreadsheet or a QuickBooks file to easily show him or her your income, expenses and other relevant information. You should also pay attention to their personality and the gut feeling you get from them upon your preliminary meeting. It’s important that you feel comfortable with your Accountant as you will have to ask plenty of questions and share what is often personal information with him or her over time. Finally, have a think about location. While some investors may prefer their Accountant to be based locally, this is not a necessity anymore as you can send your documents easily via email or Dropbox. Nevertheless, if face-to-face meetings are important to you, be sure to research the location of your prospective Accountant and get an idea of what hours they are generally available to meet. If you need a reliable Tax Accountant, visit the Chan & Naylor website to learn more about our services. You can leave your details and we can schedule you in for a free consultation. Chan & Naylor Group has nationwide offices in Brisbane and Capalaba in Queensland, Melbourne and Moonee Ponds in Victoria, East Perth in Western Australia, and South West Sydney, Parramatta, Pymble, North Sydney, and Sydney in New South Wales.

The post Key things to consider when choosing a Tax Accountant appeared first on .