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ATO reveals the biggest tax deductions for investment property owners

BMT team — Fri, 12 May 2023 05:50:55 +0000

The Australian Taxation Office (ATO) releases rental property taxation statistics each year. These statistics reveal the type and size of the tax deductions that property investors claim. From the most recent ATO data, we have compiled a list of the biggest tax deductions residential property investors claimed in the 2019/20 financial year. 1 – Interest The biggest tax deduction Australian property investors are claiming is interest on their investment loans, with $21,068,254,068 claimed in FY 2019/20. Investors can only claim interest for any period the property is genuinely available for rent and can’t claim when the property is used for private purposes or for the principal portion of the loan. 2 – Capital works depreciation Capital works deductions (Division 43) also known as building depreciation takes second place with property investors claiming $4,138,567,853 in FY 2019/20, an increase of over $153 million from the year prior. Capital works deductions are claimable for the wear and tear that occurs to a building’s structure and items considered to be permanently fixed to the property. Capital works deductions are generally claimed at a rate of 2.5 per cent per year. 3 – Council rates Council rates are calculated based on a property’s land value and can be deducted in the year they incur. $3,827,281,335 was claimed in council rates in FY2019/20. The payment of council rates covers over 100 services including the maintenance of local roads, council facilities and open public spaces such as parks and gardens. 4 – Property agent fees/commission The cost of hiring a property agent is fully tax-deductible, including the expenses associated with calling and emailing them. $3,085,509,622 was claimed in property agent fees. 5 – Body corporate fees Body corporate fees are costs incurred to maintain, manage, and control the common property on behalf of owners. Body corporate fees contribute toward the payment of things such as building insurance, maintenance of common areas and amenities, contracted on-staff, utility bills of common areas, management fees and works and repairs to the building. Body corporate fees can be immediately deducted in the year the cost is incurred, unless it is a special levy for a capital expense which must be claimed over several years under capital works. $2,869,399,392 was claimed in body corporate fees in FY2019/20. 6 – Repairs and maintenance Repairs are works made to repair damage or deterioration of a property, whereas maintenance is work completed to prevent damage or deterioration of an asset. These costs can typically be claimed as an immediate tax deduction in the year they are incurred. $2,839,134,344 was claimed in repairs and maintenance in FY2019/20. 7 – Plant and equipment depreciation $2,647,136,205 was claimed in plant and equipment depreciation (Division 40) in FY2019/20. Plant and equipment assets are items which are easily removable or mechanical in nature like hot water systems, carpets and smoke alarms for example. Investment property owners can claim depreciation for the wear and tear of these assets at a rate dependent on the investor’s elected depreciation method. Even though the legislation changes in 2017 prevented owners of second-hand residential properties from claiming deductions for previously used plant and equipment assets, this proves that there are still lucrative deductions available in this division. Owners can still claim deductions for brand-new properties and assets they installed themselves. 8 – Water charges Depending on the state, some landlords are required to pay all water supply service charges and sewerage supply service charges. While water charges are generally the responsibility of the tenant, in some states water isn’t allowed to be disconnected between tenants. In those scenarios, property owners are eligible to claim deductions for water charges during vacant periods, as long the property is genuinely available for rent. $1,793,013,752 was claimed in water charges in FY 2019/20. 9 – Insurance $1,779,337,169 was claimed in insurance fees in FY 2019/20. Property investors can claim insurance as a tax deduction, covers include landlord insurance, building insurance, contents insurance, or combined building and contents insurance. 10 – Land tax $1,529,183,161 was claimed in land tax in FY2019/20. Land tax liabilities are calculated differently in each state and are deductible in the respective income year to which the liability relates. 11 – Sundry rental expenses Sundry rental expenses are small, rare or insignificant expenses that don’t fit into other categories. $1,126,510,953 was claimed in sundry rental expenses in FY 2019/20. 12 – Cleaning expenses $306,352,293 was claimed in cleaning expenses in FY2019/20. As long as the property is genuinely available for rent, cleaning expenses are fully tax-deductible in the year they occur. 13 – Gardening/lawn mowing expenses In an apartment, unit or townhouse dwelling, it’s typically the landlord’s responsibility to maintain the lawn and any gardens as these areas are shared between tenants. Some single-dwelling leases stipulate the landlord will maintain the landscape, they may do it themselves or hire a professional service to do it. This also includes maintaining the property during vacant periods. Any equipment used exclusively for maintaining the landscape within an investment or costs associated with hiring a professional is fully tax deductible. $233,185,931 was claimed in lawn mowing and gardening expenses in FY 2019/20. 14 – Borrowing expenses Borrowing expenses include the costs involved in purchasing a property, such as loan establishment fees, lenders’ mortgage insurance, stamp duty charged on the mortgage, title search fees, costs for preparing and filing mortgage documents, mortgage broker fees and valuation fees. Borrowing expenses less than $100 can be fully deducted in the year they incur. Borrowing expenses over $100 are spread over five years or the term of the loan, whichever is less. $205,038,974 was claimed in borrowing expenses in FY 2019/20. 15 – Advertising for tenants $129,808,789 was claimed in advertising costs in FY2019/20. Advertising a rental property can be costly once photography, ‘For Lease’ signboards and online and print listings are complete. Fortunately, these expenses are fully tax deductible. In some scenarios, a real estate or property manager will include these costs in their fees. 16 – Pest control fees $77,726,097 was claimed in […]

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Commonly missed deductions

BMT team — Tue, 21 Aug 2018 23:57:29 +0000

Depreciation is a complex area, so unless you’re a specialist Quantity Surveyor or a qualified Tax Accountant, it can be hard to wrap your head around it. As such, investors miss tax deductions all the time, meaning they could be losing out on thousands of dollars. Research shows that 80 per cent of property investors are failing to maximise the deductions claimed from property depreciation. So why are so many investors missing out and what deductions commonly go missed? Why are tax deductions missed? There are a few reasons why deductions may be missed or not maximised. The first is that many investors remain unaware of depreciation and that it’s even a valid claim. This is possibly because it is a non-cash deduction, meaning the investor does not need to spend any money in order to make a claim. Furthermore, they may not realise the significant deductions available and may falsely consider it a minor claim not worth their time. They may not be getting a specialist to prepare a tax depreciation schedule. Quantity Surveyors are one of a few professionals recognised by legislation (Tax Ruling 97/25) to have the appropriate construction costing skills to calculate building costs for capital allowance claims. You should ensure you seek the services of a Quantity Surveyor who specialises in property depreciation to ensure claims are maximised. A specialist will have up to date knowledge of legalisation and the tools and tricks available to maximise deductions in a legally compliant manner. They will also ensure that no asset goes unaccounted for. Many investors are unaware that they can make a claim for renovations completed by a previous owner. So long as they fall within the qualifying date for capital works, these previously completed renovations are a valid claim and can provide significant deductions for current owners. Unusual or small items often go overlooked. Even if they’re aware of depreciation, many investors don’t realise that things as simple as door stoppers, shower curtains and spa bath pumps can attract a depreciation claim. While they may seem small, these items can really add up in a depreciation claim. Some investors will choose to make a self-assessed claim. This is risky for a variety of reasons. Many investors do not have the technical knowledge of a trained professional and as such, they can overlook important items or make an incorrect claim, which may mean it is not compliant and puts them at risk in the event of an ATO audit. It’s always best to get an expert on board to prepare your tax depreciation schedule. What assets are commonly missed? As previously mentioned, renovations made by previous owners are commonly missed. Speaking of renovations, if an investor is currently completing a renovation, they may be eligible to scrap any assets they’re getting rid of in the renovation. This means they can claim the remaining depreciable value for certain assets. This can be commonly missed if a specialist Quantity Surveyor has not provided assistance. Furthermore, a Quantity Surveyor will know how to make use of different strategies and tools to maximise deductions sooner, such as the low value pool. If this is overlooked, it can result in valuable deductions going unclaimed. Finally, small or unusual items are often overlooked, deemed too insignificant by investors to warrant making a claim. Some examples include: Garbage bins Door closers Rugs Smoke alarms Exhaust fans Electric clocks Freestanding bathroom accessories Shower curtains Spa bath pumps Garbage disposal units Tennis court nets Automatic window shutters Freestanding garden sheds Intercom system Electric water filters Ceiling fans Solar garden lights CCTV systems Water feature pumps; just to name a few These deductions may seem small, but they do add up for property investors and should not be overlooked. What’s the solution? When it comes to property depreciation, it’s always best to employ the services of a Quantity Surveyor that specialises in tax depreciation, such as BMT, to prepare a tax depreciation schedule for your investment property. This will not only ensure that these deductions are not missed, but that deductions for all qualifying assets are maximised and compliant with ATO legislation. This schedule will cover the life of the property, can be easily used by your Accountant when preparing your tax returns and will ensure that these commonly missed deductions will not go unnoticed.

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Add value and increase deductions with an alfresco area

BMT team — Mon, 22 Feb 2016 22:57:25 +0000

Claim depreciation on outdoor structures and save Australia is made for outdoor living, so it is little wonder that alfresco areas have become sought after additions in any property. Owners see great value in adding permanent weatherproof structures to an investment property. Creating an indoor-outdoor environment which can be enjoyed all year round not only adds value to the existing property, but it can also help to attract potential tenants and potentially increase the annual rental yield. What many investors don’t realise is that by adding an alfresco or an outdoor structure of any kind, they will also impact the depreciation deductions they can claim. Any structures added to an investment property will entitle the owner to claim additional capital works deductions, also known as building write-off, at a rate of 2.5 per cent per year. If the owner installs any new plant and equipment items, including removable or mechanical assets, this will also entitle the owner to claim depreciation deductions for these items. The deductions an owner can claim for any new plant and equipment items will be based on the individual effective life of each item as set by the Australian Taxation Office. Case study Let’s take a look at a scenario in which an investor decided to add a seven metre by four metre outdoor alfresco to their existing four bedroom investment property. The structural work on the alfresco cost $15,010. The owner also chose to install plant and equipment assets totalling $9,217 in value, bringing the total cost of work done to the property to $24,227. Below is a summary of the costs of the new additions and the first full year depreciation deductions the owner could claim. As the table shows, the owner of this property could claim $375 in capital works in the first full financial year deductions for structural items such as the concrete slab, walls, tiles, roof and lattice screening. The owner of the property would also be entitled to claim capital works for the remaining life of the property (forty years) for new structural items. Plant and equipment assets installed such as an outdoor ceiling fan, outdoor furniture, a freestanding BBQ, light shades and garden solar lights resulted in a $3,831 deduction in the first full financial year for the property owner. This brought the total depreciation deduction of new items installed to $4,206 for the owner. These deductions would be in addition to any remaining depreciation deductions the owner could claim from the pre-existing property. It is important to note, that if the property owner was to remove any existing structures or assets during the process of adding the alfresco area, they may also be entitled to additional deductions. If any remaining depreciation deductions exist for items or assets being removed during a renovation or addition, the property owner may be entitled to claim a deduction for the full amount of the remaining depreciation for items scrapped within the financial year of their removal. Learn more: What is scrapping? Property owners should always seek the advice of a specialist Quantity Surveyor when they plan to make any alterations to their rental property. If the owner has an existing depreciation schedule, the owner will need to have it updated, and if assets or structures are being removed, the Quantity Surveyor should perform a site inspection before and after work commences to ascertain the remaining depreciation of items being removed and value new structures and items added to update the depreciation schedule for the owner. To find out more or request a quote for a tax depreciation schedule call 1300 728 726 today.

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Shower yourself with $2,210 in bathroom and laundry deductions

BMT team — Tue, 02 Feb 2016 04:36:46 +0000

When it comes to depreciation, the bathroom and laundry areas of a rental property contain some of the items most often missed by property investors when claiming deductions. While shower curtains and bathroom accessories such as toilet brushes, soap dispensers and hampers have relatively low depreciable values, these items can provide property investors with returns straight away. Items contained in a rental property which have a depreciable value of less than $300 can be deducted as an immediate write-off in the first financial year after their acquisition. These plant and equipment assets experience wear and tear quickly so investors may also choose to update them frequently. This can become costly for an investor if they are not maximising their deductions and claiming them correctly. Similarly, low-cost assets which have a value below $1,000 when first purchased and low-value assets which cost more than $1,000 in the year of acquisition, but remaining deductions after the first year’s claim are below $1,000, are eligible to be added to a low-value pool. Pooling is a method by which plant and equipment items will be depreciated an increased rate of 18.75 per cent in the first year and at a rate of 37.5 per cent from the second year onwards. Read more: How does low value pooling help to maximise my depreciation claim Items which have a relatively low value add up and while bathrooms and laundries are not the only rooms in a rental property where these low cost items are found, it is a place Quantity Surveyors frequently spot them when completing a detailed site inspection. To examine this further, let’s take a look at some of the deductions BMT Tax Depreciation found for a rental property owner in the shared bathroom and laundry area of their property. In the first five cumulative financial years, the owner of this rental property can claim $2,210 in deductions from their shared bathroom and laundry area alone. Plant and equipment assets commonly found in a bathroom such as the shower curtains, the hamper and bathroom accessories such as the tooth brush and soap holders all had low depreciable values of $30, $40 and $80 respectively. As these items all were beneath the $300 threshold, the investor could claim an immediate write-off for these items in the first financial year claim. The washing machine on the other hand was found to have a depreciable value of $1,250. As this value does not meet the criteria for an immediate write-off or the low-value pool in the first or second year, the item must be depreciated based on an individual rate and effective life enforced by the Australian Taxation Office (ATO). However, after the first two year claims have been made the item will fall below the $1,000 threshold and the investor can then claim the remaining years at the increased low-value pool rate of 37.5 per cent. This means, that within five years, an investor can claim $1,055 in deductions for the washing machine alone. Clothes dryers are another common asset found in the laundry of a rental property which these same rules may apply to, depending on the depreciable value of the particular dryer found on close inspection. This is a good reason to have an expert assess the items in your property for you. A specialist Quantity Surveyor will ensure the maximum deductions for each item found within an investment property are valued and calculated correctly using the depreciation rules available. Capital works deductions for items found in the bathroom of a rental property pertain to the structural and fixed items. Examples include the bath, tiles, sink, taps, cupboards, the shower and towel rails. Depreciation for these items will be calculated at a rate of 2.5 per cent over forty years so long as construction commenced within the legislated dates enforced by the ATO. In the first five years, the capital works deductions found in the bathroom alone for this investor cumulate to $1,005. The results will multiply as all of the rooms within the property will have depreciation deductions available. To maximise depreciation benefits for your rental property, speak to one of our depreciation specialists today on 1300 728 726. The difference it can make when completing your annual income tax return and the cash flow benefit are well worth making an enquiry. This article originally appeared online on Sourceable. You can view the original article by clicking here.

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