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Repairs, maintenance and capital improvements for a rental property

BMT team — Sat, 17 Apr 2021 23:15:45 +0000

One of the most common mistakes made by property investors when completing their annual tax return is confusing repairs, maintenance and improvements. In this article, we will cover: What is a capital improvement Repairs vs maintenance Repairs, maintenance and improvement example It’s important to understand and distinguish each deduction in order to correctly lodge your claim and maximise your tax refund. Key points: Repairs are considered work completed to fix damage or deterioration of a property Maintenance is work completed to prevent damage or deterioration of an asset A capital improvement occurs when the condition or value of an item is enhanced beyond its original state at the time of purchase A quantity surveyor can help you claim your depreciation deductions correctly What is a capital improvement? A capital improvement occurs when the condition or value of an item is enhanced beyond its original state at the time of purchase. This must then be classified as either a capital works deduction or as plant and equipment depreciation. Capital works refers to the deductions available for the building’s structure and items deemed to be permanently fixed to it such as bricks, mortar, sinks and basins. While plant and equipment assets are items which can be easily removed from the property such as carpet, blinds and light fittings. Repairs vs maintenance for rental property According to the Australian Taxation Office (ATO), repairs are considered work completed to fix damage or deterioration of a property, such as replacing part of a damaged fence. Maintenance is work completed to prevent damage or deterioration of an asset. For example, oiling a deck is considered maintenance as it helps to preserve the quality of the property and prevent future corrosion. Any costs incurred to repair or maintain your investment property can typically be claimed as an immediate tax deduction in the year of the expense. However, the ATO specifies that initial repairs for damage that existed when the property was purchased are not immediately deductible. Instead these costs are used to work out your capital gain or capital loss when you sell the property. Repairs, maintenance and capital improvement examples Let’s take a look at an example of when you might need to distinguish between repairs, maintenance and capital improvements. You might decide to renovate the bathroom in your investment property: Retiling the bathroom would be deemed as a capital improvement and can be claimed as a capital works deduction. Residential homes in which construction commenced after 15 September 1987 are eligible to claim capital works deductions at a rate of 2.5 per cent over 40 years. If you decide to replace a light fitting in the bathroom, this will be claimed as a plant and equipment asset and can be deducted based on the asset’s effective life. If the purchase was less than $300 it will be 100 per cent tax deductible in the year the expense was incurred. If you fix a crack in the plaster, this will be considered a repair as you are restoring a damaged asset. You’re entitled to claim an immediate deduction for any expenses involved. Property investors completing renovations should also be aware of legislation introduced in 2017. 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. However, if an investor lives in their rental property while renovating, any newly installed assets could be classed as previously used. Therefore, the investor is potentially risking their tax benefits so it’s important not to live in an investment property while renovating.. Claim your depreciation deductions correctly If you added anything to your property in the last 12 months, you can simply log into the MyBMT portal to add new assets to your schedule, or you can contact BMT’s team on 1300 728 726. The best way to ensure you claim property improvements correctly is to contact a specialist quantity surveyor to arrange a tax depreciation schedule update.

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Capital works deductions explained

BMT team — Tue, 09 Jul 2019 06:00:42 +0000

Making sense of tax depreciation lingo can sometimes be confusing but as an investor, it’s important that you have a good understanding of the depreciation deductions you can claim to ensure you’re getting the most out of your investment property. As outlined by the Australian Taxation Office there are two categories that make up depreciation deductions, division 43 capital works deductions and division 40 plant and equipment depreciation. What are capital works deductions? Capital works deductions are income tax deductions an investor can claim for the wear and tear that occurs to the structure of the property and items considered to be permanently fixed to the property. This includes any structural improvements that may have been made by a previous owner during a renovation within the relevant dates. In a residential property, capital works deductions cover the following items: Bricks, mortar, walls, flooring and wiring Built-in kitchen cupboards Clothes lines Doors and door furniture (handles, locks etc.) Driveways Fences and retaining walls Sinks, basins, baths and toilet bowls Some common items in commercial properties that can be claimed as capital works deductions include: Bricks, mortar, walls, flooring, roofing and wiring Sinks, tiles, basins and toilet bowls Mezzanines Ducting for air conditioning Particular assets can cause confusion because some parts will qualify for plant and equipment depreciation while other parts qualify for capital works deductions. An example of this is an air conditioning unit, where the unit itself depreciates under division 40 whilst the ducting for the same unit falls under division 43. Similarly, an in-ground pool falls under the division 43 whilst the pumps and filtration equipment for the pool are division 40, depreciating plant and equipment assets. As a general rule, any residential building where construction commenced after the 15th of September 1987 will entitle their owner to capital works deductions at a rate of 2.5 per cent per year for up to forty years. In a commercial building, capital works deductions generally apply to buildings where constructed commenced after the 20th of July 1982. If your property was constructed prior to these dates, it is still important to get in touch with a qualified quantity surveyor, such as BMT, as often these buildings will have undergone some form of renovation which can result in capital works deductions for the owner. To order a BMT Tax Depreciation Schedule to ensure you are maximising your depreciation deductions on your investment property, you can Request a Quote online or call us on 1300 728 726.

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What you need to know when claiming property depreciation

BMT team — Thu, 16 May 2019 23:15:03 +0000

With tax time fast approaching it’s essential investors understand the importance of property depreciation and its financial benefits. In this article we will explore: What is property depreciation? Why you need a tax depreciation schedule What sets BMT Tax Depreciation Schedules apart Claiming property depreciation What is deductible under capital works allowance? What are plant and equipment assets? The difference between repairs and improvements What is property depreciation? Depreciation is the natural wear and tear that occurs to a building and the assets within it over time. Why you need a tax depreciation schedule Any property which generates income may be eligible for thousands of dollars in depreciation deductions. A BMT Tax Depreciation Schedule ensures investors don’t miss out on the hidden cash flow available for their properties. What sets BMT Tax Depreciation Schedules apart BMT is the largest and most successful tax depreciation company in Australia. During FY 2017/18, we found residential property investors an average first year deduction of almost $9,000 Tax Ruling 97/25 states Quantity Surveyors such as BMT Tax Depreciation are one of the only professions qualified to estimate construction costs for depreciation Our schedules last for the forty-year life of an investment property BMT Tax Depreciation Schedule fees can be claimed in your tax return. Claiming property depreciation A BMT Tax Depreciation Schedule includes a detailed outline of two major components – capital works deductions (division 43) and plant and equipment assets (division 40) Capital works allowance refers to the tax deductions for the building’s structure and items considered to be permanently fixed to the property. Plant and equipment assets refer to items which can be easily removed from the property. What is deductible under capital works allowance? Capital works allowance or ‘building write-off’ is a deduction available for the structure of the building and items such as sinks, baths, built-in kitchen cupboards, clothes lines and doors Generally, residential properties in which construction commenced after 15th September 1987 can claim capital works deductions at 2.5 per cent for forty years Commercial properties in which construction commenced after 20th July 1982 are also eligible, though the deductions will vary based on the type, age and historical construction cost of the property. What are plant and equipment assets? Plant and equipment assets refer to items that can be easily removed from the property or are mechanical in nature such as hot water systems, ovens, carpet and blinds Deductions for plant and equipment assets are based on the condition and quality of each individual asset 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. Owners are still eligible to claim for any brand-new plant or equipment assets they add to the property It’s important to note that investors who purchase brand-new residential and substantially renovated properties, commercial real estate or add new plant and equipment assets to a second-hand residential property can still claim substantial depreciation deductions. Visit BMT to enquire about the possible depreciation deductions available on a current or potential investment property. The difference between repairs and improvements Deductible repair: returning items or property to their original state to retain their value. Repairs attract an immediate 100 per cent deduction in the year of expense Improvement: improving the condition of an item or property beyond that of when it was purchased. Improvements are capital in nature and as such, must be depreciated over time. For a free assessment of likely depreciation deductions, contact BMT Tax Depreciation today on 1300 728 726.

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The Four Grand Slams of Property Depreciation Deductions

Bradley Beer — Fri, 23 Jan 2015 05:30:59 +0000

As one of the four tennis Grand Slam tournaments, the Australian Open moves into the business end of the competition. Players will dig deep, steel their focus and demand more from their bodies in order to take their game to another level. At the end of it all there can only be one winner, and those who win will be those whose tennis game both mentally and physically has come together for the crucial part of the tournament. With property depreciation you can always win by getting more out of your depreciation claim with our 4 grand slams of depreciation tips. Become BMT Smart and take these tips into account to start maximising your depreciation deductions. Get more out of your property depreciation claim with these simple tips A large part of property investing is maximising your tax deductions. While many investors fail to claim property depreciation, many more may be aware but are missing out by only claiming a fraction of their full depreciation entitlements. Here are some ways property investors could be able to increase their yearly tax deductions by thousands. New and older properties have depreciation claims available As a property gets older, its value naturally depreciates with or without a tax deduction claim. The older a property is, the less value remains to be depreciated and claimed for. A new property allows investors to claim far more depreciation deductions as the property has lost little or none of its original value. Additionally, while plant and equipment deductions can be claimed for all investment properties, capital works deductions cannot be claimed on residential properties constructed prior to 15th September 1987. Don’t overlook capital works deductions Statistics released by the Australian Tax Office (ATO) indicate that approximately 2.5 million property investors claimed some form of deduction for the 2011-2012 financial year. Of these, 1.7 million investors claimed property depreciation for plant and equipment, while only 1 million investors claimed deductions for the building’s structure and fixed assets as capital works deductions. If your investment property was constructed from 15th September 1987 onwards and you are not claiming capital works deductions, you are missing out on dollars in your pocket. Even if you haven’t been claiming these deductions previously, the ATO allows two previous tax returns to be amended to recoup missed deductions. Claim renovations completed by the previous owner Anything in the property that occurred in a previous renovation can be estimated by a Quantity Surveyor and deductions calculated accordingly. This includes items that are not immediately obvious, such as an old extension or new plumbing. For capital works to be eligible for the capital works deductions, construction must have commenced within the qualifying dates; after 15th September 1987 for residential properties and from 20 July 1982 for commercial buildings. Get back what you throw away When property investors start watching too much of ‘The Block’ or ‘House Rules’ and begin planning renovations to their investment property, it is little known that they are able to claim tax deductions for assets discarded during renovation. By organising depreciation schedules both before and after the renovation to support their claim, investors are able to claim any remaining deductions from the items being removed and start claiming depreciation on the newly installed items. For savvy property investors, property depreciation offers significant tax allowances. The above four tips are just a few of the ways that a comprehensive and accurately prepared depreciation schedule can help improve an investors’ cash flow. Want to know more? Call us on 1300 728 726 or complete this form and we’ll be in contact with you to discuss your property.

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