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Discover the tax benefits available to granny flats owners

BMT team — Mon, 26 Sep 2022 02:18:41 +0000

For many years granny flats have been an increasingly popular way to invest in property. Granny flats can boost a property’s value substantially and increase rental yields. Granny flats (also known as secondary dwellings) are self-contained units that have a kitchen or kitchenette, bathroom, bedrooms, a laundry and living area. They’re popular for older family who require ongoing support, as Airbnb’s (more so if the location is in a tourist area), and for people simply wanting to boost their cash flow. Some people are even moving into their granny flat and renting out their main home to maximise earning potential. In this article we explore the benefits of granny flats, each state’s regulations and how depreciation deductions can maximise an investment return. Tax benefits of a granny flat State regulations Maximise investment return with depreciation Tax benefits of a granny flat There are many benefits to granny flats including earning a rental income, quick returns, access to tax benefits, growth in property value, and space for family growth. The cost of constructing a granny flat is cheaper and can yield quicker returns than alternative residential investment properties such as a house or an apartment. The price of constructing a granny flat can be anywhere from $80 000 up to $300 000 plus and construction is usually scheduled between twelve to fourteen weeks from start to final handover. Prices depend on size, fixtures and fittings, the land it’s built on (for example if the land is on a slope construction may cost more) and existing services (if the granny flat is further away from your power and sewerage system it may cost more to connect them). This doesn’t include council or application fees. Some councils require fees and contributions be paid before building which go toward the additional services and infrastructure required as a result of a development. Because a granny flat is income producing there are a variety of tax benefits available including depreciation] and claiming costs such as rates, insurance, interest rates, repairs and maintenance. A typical granny flat can produce a rental income of anywhere from $250 -$500 a week depending on location, size and level of finish. Renting out a granny flat doesn’t only improve cash flow but allows owners to pay off their mortgage quicker. It’s important to note that while there are many benefits to granny flats it doesn’t guarantee the house will grow in value and can potentially reduce the buyer pool when selling as some people don’t want a granny flat on the property. There are also possible capital gain tax implications to consider. State regulations Each state has varying rules to how granny flats can be used, including if they are permitted to produce an income, who can occupy them and where they can be constructed on the property. In New South Wales granny flats can be built without council approval and can be occupied by anyone. The property can’t be smaller than 450 square metres, must maintain a three-metre setback from the rear of the property, a 0.9-metre setback from the side boundaries and can’t exceed a maximum internal space of sixty square metres. They can’t exceed the maximum building height of 8.3 metres, must maintain a three-metre distance from any existing tress over four metres tall, can’t be built over an easement and the property must have residential zoning. In the Australian Capital Territory (ACT) granny flats can be built and occupied by anyone with council approval. The property must be at least 500 square metres, the granny flat can’t be smaller than forty square metres and no larger than ninety square metres, in a residential zone, compliant with the total plot ration for the block and compliant with the Australian Standard AS 4299 Adaptable Housing Class (Class C). They must be a water sensitive urban design, compatible with exterior building materials of existing buildings in the neighborhood and compliant with setbacks. Granny flats in the ACT must have one parking space which cannot be in the ‘front zone’, clear unobstructed pedestrian access, reasonable levels of privacy and private open space for tenants. Under emergency planning changes to help alleviate the housing crisis granny flats in Queensland can now be occupied by anyone. Previously in order to rent out a granny flat to any non immediate family member council approval was required. Without council approval granny flats can’t be larger than eighty square metres and built no further than twenty metres from the main house. Two storey granny flats can’t be taller than 9.5 metres, the rear and side walls must not exceed 7.5 metres, the highest point of the roof cannot be greater than thirty degrees on small lots and can only be built in low or medium density zones. Three storey granny flats can’t be taller than 11.5 metres, the rear and side walls must not exceed 9.5 metres and the maximum point on the top of the roof cannot be greater than thirty degrees. Granny flats must have one parking space (additional to those for the main house) and a separate entrance. In Western Australia only one granny flat can be built on each lot, the lot size needs to be a minimum of 450 square metres (unless your local council states otherwise) and a maximum floor area of seventy square metres (some councils may state up to 100 square metres). Approval from the local council is required if the granny flat will be occupied by a person outside of the household. Once a granny flat is built the land cannot be subdivided (unless your local council states otherwise). The regulations on granny flats in Tasmania is complex as it varies between councils. Developing land for residential purposes requires approval from your local council and granny flats must have a maximum floor size of 60 square metres or no more than thirty per cent of the total area of the main home. All building and plumbing works must comply with the standards of the National Construction Code […]

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How to calculate property investment return

BMT team — Sun, 05 Apr 2020 23:57:06 +0000

All forms of investment rely on calculated risk-taking and the ability to manage and organise finances. It wouldn’t be feasible to make an investment without having some idea of the potential return. Of all investment options, this is especially true for property. Property is a tangible investment that creates wealth through rental income, tax incentives and capital growth, so it’s important to know how to calculate the true property investment return. In order to do so, you must first understand the key elements involved in property investing such as net yield, capital gain, holding costs and cash flow. Contents Net yield Capital gain Holding costs Cash flow How to calculate your property investment return Boost your cash flow with depreciation How to calculate your property investment return with PropCalc Net yield Also referred to as the rate of return, net yield is the return on your investment after expenses and outgoings are deducted. It considers the property’s price or market value, expenses and rental income and is expressed as a percentage. Net yield can be difficult to calculate as some expense and outgoings will vary. Capital gain Capital gain is the profit made from the sale of an investment property. This profit is referred to as a capital gain and is the difference between what you paid for the property (your cost base) and what you sold it for. Capital gains tax (CGT) is included in your assessable income and taxed at your marginal rate. Find out when you pay capital gains tax on an investment property and further information on CGT . Holding costs Holding costs are the ongoing expenses involved in owning an investment property. This can include costs such as property management fees, strata fees, insurances, repairs, maintenance, mortgage repayments and council rates. While many people consider the cost to purchase an asset, some don’t fully consider all of the associated holding costs and this can be detrimental to an investment strategy. Cash flow Cash flow refers to a stream of finances going into and out of an investment property. Positive cash flow indicates that your investment is providing you with more money than it’s costing you to own. Negative cash flow means that your holding costs outweigh your profits. How to calculate your property investment return Now you understand the key principles involved in property investing, you can start calculating your property investment return. The return on investment indicates the percentage of money returned to you after holding costs are deducted. The first step is to calculate or estimate the property’s annual rental income. For example, if you own a ten-year-old investment property purchased for $400,000 and earn a rental income of $490 per week, your annual rental income will total $25,480. Next, calculate or estimate your holding costs. To help you get started, here is a list of expenses to consider: Property management fees Insurance policies Council rates Land and water rates Interest on mortgage repayments Repairs and maintenance A typical property with this purchase price would have total expenses of around $33,400. If you take away the holding costs from the rental income, this will provide you with your return. $25,480 – $33,400 = -$7,920 As you can see, your return is negative, meaning the property is negatively geared. Fortunately, you’re entitled to claim your loss on tax at the end of every financial year. You can also claim depreciation deductions to reduce your taxable income and therefore boost your cash flow. Boost your cash flow with depreciation Depreciation is the natural wear and tear that occurs to a property and its assets over time. The Australian Taxation Office allows owners of income-producing property to claim this wear and tear as a deduction each financial year for up to forty years. As your investment property is ten years old in this example, you won’t be eligible to claim any previously used plant and equipment assets as per 2017 legislation. Find out more about the 2017 depreciation legislation here. The following scenario shows your cash flow with and without depreciation:As you can see, you’re entitled to $5,450 in depreciation deductions in the first financial year alone. Without depreciation, you were paying an outlay of $96 per week. By claiming depreciation, you’re able to reduce this outlay to $57 per week, saving $39 per week. How to calculate your property investment return with PropCalc If you are looking to buy an investment property, use PropCalc to calculate your property investment return before making a purchase. PropCalc uses key market analysis and customisable data to show exactly how a purchase will affect your cash flow. More than just a mortgage calculator, PropCalc allows you to personalise data such as purchase costs, property income, annual expenses and cash flow, producing results for specific scenarios customised by you. The free calculator also considers the stamp duty, variable deposits, interest rates and finance fees. The tool can determine whether a property is likely to be negatively or positively geared based on your financial situation and estimates the likely depreciation deductions available to be claimed. PropCalc is free of charge and available in MyBMT, a comprehensive portal designed to help investors access and manage their depreciation and property needs. The interactive platform gives you on-the-go access to depreciation information, insurance quotes, valuable market analysis and helpful property tools. Register for MyBMT here. PropCalc is also available as a downloadable app. Find the convenient tool at the App Store or Google Play today.

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Ways to splash the extra cash from depreciation

BMT team — Wed, 18 Jul 2018 01:25:44 +0000

When an investor starts claiming depreciation, they can reduce their tax liability. This is because depreciation essentially lowers their taxable income, meaning they may be able to put more more money back in their pocket at tax time. For many investors, the additional savings depreciation provides them can help to reduce their loans faster, add more funds into an offset account, to put money towards a new car or a holiday, or to assist them with everyday expenses involved in holding the property. As an investor, there are smarter ways to use the extra cash you will make from depreciation. Here are just a few: Pay off your debts First things first, if you have any major outstanding debts, this may be a good chance to reduce or eliminate them. While a Financial Advisor can advise which debts you should be paying off first according to your own financial institution, things like credit card debts (which often have very high levels of interest) or personal loans could be a good thing to pay off or reduce. Diversify your portfolio Most Financial Advisors will tell you that diversifying is a great way to minimise risk and is important for long-term financial success. When you have a diverse portfolio, these different investments are likely to react differently to the same event. This means that if one area suffers, you still have a stake in another area that is growing. Ideally, this will offset significant financial losses. For example, a residential investor might look to invest in shares, bonds or even venture into the world of commercial property. Grow your portfolio Most investors will stop at one property but if you have the means, you can experience greater returns by growing your property portfolio. Carefully consider whether this works for your financial situation and fits in with your investment goals. As always, do some proper research to ensure you’re investing in the right area and the right property to maximise capital growth and rental returns. Boost your super It’s never too early to plan for your retirement. If you’d like a similar standard of living once you retire, it’s likely you’re going to need to make some voluntary payments on top of what your employer pays. This money is concessionally taxed, will generally be locked away until you retire and you’ll benefit from compounding returns over time. Do some renovations on your investment properties Is your investment property a bit run down, in need of some better appliances or just crying out for a fresh coat of paint? Well this is your chance to change that. Using the extra cash from depreciation to improve your current property is a great idea, provided you don’t overcapitalise. This could potentially boost rental returns and increase the overall value of the property. Expand your business If you’re a commercial property investor or running a business as the tenant, extra cash never goes astray. Depending on how the business is performing you could use this extra cash to expand or invest in other parts of your business. For example, this may give you the funds to upgrade your business equipment or start expanding into a new area. Consult with an Adviser Please note that these examples are general in nature and do not take into account your personal situation. As always, you should consult with your Financial Adviser when making such financial decisions to determine the best course of action for your individual circumstances.

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The only sure money on Melbourne Cup day

BMT team — Tue, 04 Nov 2014 00:45:01 +0000

There’s more cash up for grabs than the prize This afternoon, like everyone else in Australia, BMT will be holding its breath when the winner of the 2014 Melbourne Cup is announced. With $6.2 million up for grabs as prize money and many millions more being thrown down at the betting stations, discussion of the race always comes back to money. Working in an office of tax depreciation specialists, any such talk of money will eventually turn into a discussion of tax deductions. With all the ritz and glamour surrounding the race, the question always raised is what sort of deductions would be available for all that excess? This year we’ve decided to share our answer. Going to the races Flemington Racecourse is one of the largest sport complexes in Australia and certainly sees more money passing through on just this one day than most people will ever see in their lifetimes. It has state of the art facilities that attract racers and spectators alike from all across the world to put their money on the line. However, what if you decided that you wanted a piece of the action and set up your own event to rival the Melbourne Cup? If BMT decided to set up a competing event, with a facility equally as lavish as Flemington Racecourse, it would need a track, stables, member’s area and three massive grandstands. Not including the costs of acquiring enough land to accommodate such a large racecourse, a conservative construction cost estimate of the new buildings would be $100 million. With all that outlay, the tax deductions for the depreciation of BMT’s racecourse would be huge. The below table shows a rough estimate of what could be claimed, provided that we used BMT for the tax depreciation schedule. Punting, BMT style Clearly, if we were ever to create an event rivalling the Melbourne Cup, significant capital raising would be needed. Fortunately we have devised a method to use our depreciation expertise to pick the winner of this year’s Melbourne Cup. Many punters are unaware that racehorses are actually listed as depreciable assets by the Australian Taxation Office. With a little research it is possible to find the purchase price of a number of the horses competing in this year’s race and estimate the deductions available to their owners. What’s more, by looking at the year of purchase it is possible to estimate the remaining depreciable value of each competitor. Our hypothesis is that the horse with the greatest remaining depreciable value will have the winning edge in today’s race. The below table shows our race analysis for 2014. While our predictions seem at odds with conventional bookmaker wisdom, our analysis indicates that Brambles should be the winner by a hair this afternoon. If our depreciation estimates prove to be an accurate way of predicting the winner we could be well on our way to starting our own race event, which we are pleased to announce would be called the BMT Cup. All recommendations given are made solely for entertainment purposes. BMT Tax Depreciation is not responsible for any loss or damages resulting from the above advice.

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Should you turn your investment property into a doghouse?

Bradley Beer — Wed, 22 Oct 2014 22:58:04 +0000

Pet owners could be your solution to increasing rental yield It’s no secret that property investors hate pets in their investment properties. They can be unpredictable, messy and destructive. It should come as no surprise that internal research conducted by realestate.com.au has shown that approximately only 5% of their rental listings are pet-friendly. However, for property investors concerned with improving their rental yield, reconsidering this preconception could provide thousands of dollars annually in additional rental income. Doing the math Property investors often associate pets with higher maintenance and overall costs, but extensive studies conducted in the US have shown differently. ‘Companion Animal Renters and Pet-Friendly housing in the U.S.’ found that pet-friendly properties are typically leased out in nineteen days, compared to the twenty-nine days it takes on average to find a tenant for a pet-unfriendly property. Assuming weekly rent of $450/week, this already leaves the pet-friendly property owner $641 better off once both properties are tenanted. Australian research has also shown that pet owners are willing to pay between 7-14% more rent for the right to keep their pets. For the purposes of this exercise, this will increase the rent for the pet-friendly property to $500/week. For a twelve month lease, this extra $50 a week will add up to $2,600 in additional income. Pet owners also stay longer; because it is so difficult to find pet-friendly accommodation, they are usually very reluctant to move on. This means that the properties’ owners have half as many vacancy periods to worry about. With an average vacancy period of twenty-nine days for investment properties that do not allow pets, on average this adds up to another $1,859 in lost income. In regards to the costs of additional damage caused by pets, research data has defied expectations by showing that there is little, if no, difference in overall maintenance and repair costs for investment properties with and without pets. Given how difficult it is for pet owners to find accommodation, they have a vested interest in ensuring that no harm comes to any rental property they manage to secure. With so few rental properties allowing pets on the market, the overwhelming demand for pet-friendly properties also allows owners to be far more selective, screening potential tenants and their references to ensure that they are not only responsible pet-owners, but responsible tenants as well. Due to these factors, the total difference in annual damages found in the U.S. research between tenants with and without pets was only $39USD, which was not judged as substantial enough to form a statistical difference, especially considering all the financial benefits received by keeping properties pet friendly. A much more significant cause of property damage, according to the same data, was children. Families with children were found to cause an additional $150USD damages over childless tenants each year. Fortunately, not many property investors were made aware of these results, sparing us from a lot of angry, homeless parents and some very pleased pets. Crunching the numbers, the difference in rental yields of properties that allow, and prohibit, pets ends up looking like this: For investors looking to increase their rental yields, allowing pets on a property is a far more cost effective solution than undertaking a costly bathroom or kitchen renovation. If concerns for damages still weigh on your mind, Pet Agreement Forms are readily available online, allowing investment property owners to more strictly regulate the terms on which pets may be kept on the premises.

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Don’t DIY this October – why property investors should always use the professionals

BMT team — Fri, 10 Oct 2014 01:48:56 +0000

Now that we’re (suddenly) in October a lot of tax-payers are scrambling to gather their receipts in order to lodge their income tax assessment. With a variety of online tools now available, some Australians are choosing to self-assess their claims rather than use a Quantity Surveyor or Accountant. This growing tendency to self-assess in order to try and save money extends to property depreciation claims, with many property investors submitting claims independent of advice from a specialist Quantity Surveyor. These are the sort of people you will meet down at the bar that will proudly tell you how much money they’re saving by not paying “expensive” professional fees. What they are not telling you is how much money they’re missing out on in the process. The real cost of self-assessing Although property depreciation is a non-cash deduction, meaning that no money needs to be spent in order to make a claim, paying a little bit extra to have a professional Quantity Surveyor come through and assess your property is one of the best financial decisions you can make. Our experience is that property investors that attempt to self assess the depreciation available on their own property tend to grossly underestimate or completely miss many of the assets that can be claimed. We often help property investors who have previously been keen self-assessors of property depreciation increase their deductions. Below is a typical self-assessed claim compared to the deductions achieved when using BMT. Deductions are based on a full financial year of ownership. Depreciation deductions were calculated using the diminishing value method of depreciation. While a property investor can often self-assess similar capital works deductions to what a BMT Quantity Surveyor might find, only a fraction of the available plant and equipment deductions are often claimed when self-assessed. In real terms, self-assessing would cost the above investor $7,050 in potential deductions after only the first year. After the first five years this “thrifty” investor would have lost out on $28,200 in deductions. When you consider that self-assessing costs this investor nearly $30,000 in deductions after only five years and that a BMT Tax Depreciation Schedule details forty years’ worth of deductions for each investment property, it becomes clear that our schedules offer exceptional value for money. Been missing out? Good news! We often receive enquiries from property investors that have been self-assessing for the last couple of years, but want to make the switch to professionally prepared depreciation schedules. One thing we enjoy is letting them know that even though they might have been under-claiming previously, they do not have to miss out on all of those deductions. The Australian Taxation Office (ATO) allows property investors to reclaim up to two years’ previous tax returns and regain those deductions back in full. Putting every dollar you get back from the ATO to good use now, you could be well on the way to financial freedom in a few years’ time. Don’t put it off any longer – request a quote today and start claiming deductions sooner.

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Preparation tips for investment property profits

Mortgage Choice — Fri, 13 Jun 2014 06:41:07 +0000

Whether you’re new to property investment or you’ve been involved in this lucrative asset-building option for years, researching the latest tips about getting the most for your money can help you maximize your investment returns. Prepare for investment property ownership The Australian market is full of potential and property investing is popular right now. However, the fact that there is money to be made doesn’t mean that you’re necessarily ready to invest. Careful consideration must first be conducted to ensure you’re in a stable financial position now and into the future. Get your personal finances under control before you put money into an investment property. Paying down your debts is a must. You’re likely to be paying more in interest on your debts than you would be earning on an investment, so it just makes financial sense to get that taken care of first. Paying down debt also improves your credit score, and you’ll need to have a good score to borrow money for investing. The higher your credit score, the lower the interest rate will be on your loan. You’ll end up with a higher rate of return. Consider interest-only borrowing There are advantages to opting for interest-only loans when you’re investing in real estate. You’ll be able to borrow more, so you could invest in multiple properties. Most lenders allow you to pay down the principal as you please, so opting for interest-only loans doesn’t lock you into a high principal that never gets paid down. Increase property value The market dictates how much you can make on your investment to a point. You retain some control, so you have to be proactive about making your property worth more. Renovations offer the perfect opportunity to increase the value of a property. If you don’t have a lot of money left over to invest in renovations, consider keeping it simple. Even improving the outdoor area or a fresh coat of paint will boost property value. Get expert advice for the right investment from http://www.mortgagechoice.com.au/ This article was supplied courtesy of Mortgage Choice.

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Sky News Business BMT Tax Depreciation on Your Property Empire – 18/04/2014

Bradley Beer — Tue, 29 Apr 2014 07:08:46 +0000

If you missed the last edition of Your Property Empire special on depreciation you can watch it below. Chris Gray of Your Empire with myself discussing all things depreciation; what you need to know to get the most deductions and to maximise the cash flow on your investment property. Comment below if you have any further questions, or if you need a quote click here.

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BMT on Sky News Your Money Your Call – 03/03/2014

Bradley Beer — Thu, 06 Mar 2014 01:34:16 +0000

BMT participate on a regular basis on the Sky News Your Money Your Call program. If you missed Monday night’s Your Money Your Call here is the replay. Michael Teys, Damien Collins of Momentum Wealth and our very own Brad Beer discuss the property market, foreign investment, depreciation, the National Rental Affordability Scheme and other caller Q&A’s

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Consider depreciation deductions when buying an investment property off-the-plan

Bradley Beer — Tue, 07 Jan 2014 23:15:06 +0000

Buying off-the-plan can be a very attractive option for your first investment property and there are some extra depreciation deductions to take into account which could help investors save thousands. Buying off-the-plan essentially means you are entering into a contract to purchase a property prior to, or during the construction phase of a property or a development. By selecting to purchase an off-the-plan investment property, investors often find there are benefits. It can often mean that you receive the end product at a cheaper price if there has been capital growth over the construction period. In some states, there are stamp duty savings available and investors also have the benefit of having time on their side, enabling them to save money until settlement and while the property is being completed. Out of all the benefits available when purchasing a property off-the-plan, the one investor’s most commonly fail to consider is what property depreciation benefits will become available. The Australian Taxation Office (ATO) allows the owner of any income producing property to claim depreciation due to the wear and tear of the building structure and fixtures and fittings contained within the property. Depreciation is considered a non cash deduction, meaning investors do not need to spend any money to be able to claim it. As with any pre-existing or built investment property, there are significant depreciation deductions available to the owner of a property purchased off the plan. It is important to note however that the property must be completed and be generating an income to claim the depreciation deductions available. A completed property purchased off-the-plan will typically attract between $8,000 and $14,000 in deductions in the first years depreciation claim, so it is fair to say that the new owner can make significant savings and increase their available cash flow by claiming depreciation for the property once it is income producing. As newly built properties contain new fixtures and fittings, the depreciable value of these plant and equipment items will be higher. The owners are also eligible to claim the maximum capital works deductions for the building structure, which means more deductions are available to claim over the life of the property (40 years). It is recommended that investors consult with their Accountant to seek advice when purchasing a property off-the-plan and also speak with a reputable Quantity Surveyor to get an estimate of the likely depreciation deductions available for the property. A specialist Quantity Surveyor such as BMT Tax Depreciation will liaise with the Property Developer to request information about the property. This information is used to provide a detailed estimate of the depreciation deductions that will become available once the property has been completed and is income producing. By obtaining this information, you as the owner will have a far more comprehensive idea of the end cost involved in holding the property. The additional cash flow created from a depreciation claim can be put towards future loan repayments or to help save for future investment property purchases. Are you buying an investment property off-the-plan? BMT can provide a complimentary estimate of the likely depreciation deductions. Contact BMT Tax Depreciation today to discuss your next investment property purchase on 1300 728 726.

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