» depreciation estimate

Do depreciation deductions apply to you?

BMT team — Fri, 08 Apr 2016 04:32:11 +0000

Owners of income producing properties are eligible to claim tax deductions for a number of expenses involved in holding a property. Most investors are aware of some of the deductions they are entitled to; for example they know they can claim their Property Manager’s fees, council rates and any repairs and maintenance costs. However, all too often investors are unaware of property depreciation and as such they frequently miss out on the valuable returns these deductions can provide them with when they complete their annual income tax returns. To help investors maximise the deductions they can claim from an investment property in the lead up to tax time, let’s take a look at some key points to help you understand depreciation. What is depreciation? Over time, any building and the assets contained within it will experience wear and tear. Legislation allows the owners of any income producing property to claim this wear and tear as a tax deduction called depreciation. Unlike other expenses involved in holding a property, such as repairs and maintenance for example, an investor does not need to spend any money to be eligible to claim it. For this reason, depreciation is often described as a non-cash deduction. Types of depreciation deductions available The Australian Taxation Office (ATO) clearly defines two types of depreciation allowances available for property investors: Division 43 capital works allowance Division 40 plant and equipment depreciation The capital works allowance refers to what an investor can claim for the wear and tear that occurs to the structure of the property. This includes any structural improvements that may have been made during a renovation. 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. Owners of older buildings constructed prior to 1987 should still find out what deductions are available, as often these buildings will have undergone some form of renovation which can result in capital works deductions for the owner. Plant and equipment depreciation on the other hand, refers to the deductions an investor can claim for the wear and tear that occurs to the easily removable fixtures and fittings found within the property. There are more than 6,000 different assets recognised by the ATO which an investor can claim depreciation deduction for. Some examples include the carpets, blinds, air conditioners, hot water systems, smoke alarms and ceiling fans. Unlike structural items, no date restrictions apply when claiming depreciation on plant and equipment assets. Each of the assets is assigned an individual effective life and depreciation rate by which depreciation should be calculated. Who should you contact to calculate and maximise your deductions? Often an investor will make the mistake of thinking their Accountant will claim all of the deductions available in their investment property. When it comes to depreciation, however, it is important to consult an expert in this area. Legislation recognises Quantity Surveyors as being one of a few select professionals with the knowledge necessary to estimate construction costs for depreciation purposes. A specialist Quantity Surveyor will use their skills to provide a depreciation schedule which outlines the deductions an investor can claim for any specific property at the end of financial year. An Accountant will then use the figures outlined within the depreciation schedule when submitting the investor’s individual income tax return at the end of financial year. How will depreciation help an investor? The additional funds an investor receives by claiming depreciation can have a significant impact on their available cash flow. On average, an investor can claim between $5,000 and $10,000 in depreciation deductions in the first financial year. Visit our handy case study page to see an example scenario showing how depreciation can make a difference for you. Alternatively, one of our expert staff are happy to provide a free assessment of the available deductions in any property.

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Save the headache with a depreciation estimate

BMT team — Mon, 15 Feb 2016 02:53:49 +0000

Don’t let loan restrictions stop you from buying off-the-plan With the Australian Prudential Regulation Authority (APRA) recently restricting capital held against loans by banks, this has resulted in limitations to investor lending. Many Australian property investors are now fearing the consequences if they are unable to meet Loan to Value Restrictions (LVR) particularly when buying through unconditional contracts. It is fundamental for property investors to take the time to research the economic environment against their financial position before plunging into purchasing off-the-plan. Buying off-the-plan generally means you are entering into a contract to purchase a property prior to, or during the construction phase of a development. The recent changes by APRA could result in investors having no choice but to pay a higher deposit than anticipated to meet the new LVR requirements. When purchasing off-the-plan, depreciation is an area investors don’t always consider when making purchase decisions. Claiming depreciation on off-the-plan properties can significantly improve an investor’s cash flow. Finding out what depreciation deductions are available on a proposed property is considerably important to help investors make astute financial decisions when taking this next step. BMT Tax Depreciation can provide a free depreciation estimate of the likely deductions available. This helps property investors crunch the numbers and consider their after tax position once a property has been purchased. For developers a depreciation estimate can help them ‘pitch’ their projects to potential buyers. Learn more: Crunch the numbers and save A depreciation estimate can be calculated for off-the-plan properties at any stage of the development. On average, BMT will find between $7,000 and $12,000 in deductions in the first full financial year alone for owners of off-the-plan units. The deductions found can make a huge difference to an investor’s cash flow and long term financial success. It is recommended to seek advice from a Mortgage Broker with regards to a loan when purchasing off-the-plan. Banks and Mortgage Brokers will take into account the potential income earned from the property when considering a potential investors loan. They may also take into consideration any expenses incurred such as property management fees and repairs and maintenance and the depreciation deductions the owner is entitled to claim. They will do this by asking potential investors to supply rental appraisal for the property and an estimate of the deductions they are entitled to. For a depreciation estimate of the likely deductions available for any off-the-plan design, visit www.bmtqs.com.au/tax-depreciation-estimates.

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Are depreciation schedules regulated in any way?

Kevin Turner — Wed, 17 Jun 2015 01:44:09 +0000

In a recent Real Estate Talk show – Are depreciation schedules regulated in any way? BMT CEO Brad Beer gives his expert advice on the regulation of depreciation schedules and what to watch out for with depreciation estimates. Here’s The Transcript: We had a question from a listener during the week who writes, “I inspected some units currently being constructed and was shown a depreciation schedule. The agent said it was just an estimate. How reliable would it be, and is it risky using these estimates to calculate the unit’s viability?” To answer that question, a man who knows all about tax depreciation schedules, Brad Beer from BMT Tax Depreciation. Kevin: I had a question from a listener during the week who writes, “I inspected some units currently being constructed and was shown a depreciation schedule. The agent said it was just an estimate. How reliable would it be, and is it risky using these estimates to calculate the unit’s viability?”To answer that question, a man who knows all about tax depreciation schedules, Brad Beer from BMT Tax Depreciation. Good day, Brad. Brad: Hi, Kevin. Kevin: Sonia’s question there, is that something she should be cautious about? Brad: It’s an interesting question. As Quantity Surveyors, we do a lot of estimates of what sort of depreciation might be available. The important thing is looking at who it’s being prepared by. Has the builder prepared it? Has a specialist Quantity Surveyor prepared it? What exactly the numbers are made up of. Have a look at it. Now, we have calculators on the website you can use to check against. You can talk to us or someone who’s reputably doing depreciation. It should have a minimum and maximum range of depreciation potentially available. Obviously, it’s an estimate. When we’ve done that as an estimate, we don’t have all the information. But we’ve done a lot of depreciation schedules, so if we’ve done it, and we know what we’re doing, we should come up with numbers that you should be able to rely on being pretty close to the truth. Using the minimum or a bit less than the minimum to be really safe is the thing to do. Making sure it’s prepared by someone who knows what they’re doing is the important thing. Kevin: Are these depreciation schedules, or the supply of these, regulated in any way, Brad? Brad: The regulation is not very heavy as far as an estimate like that. The costs that are used for the purpose of depreciation – a Quantity Surveyor’s cost – will be acceptable. Sometimes a thing to be a little bit wary of is when it has an agent or someone who is selling you the property. It’s probably in their interest to make the numbers look high, so you really want to double-check it or make sure it’s done by a reputable company that’s not prepared to move the numbers to help sell the unit. That’s the thing to be really careful of. Kevin: How would you check out their credibility? Go to their website? Brad: Go to their website. Ask your Accountant, “Have you used their report?” Have the Accountant have a look at that. If it’s not done by a depreciation specialist, get a depreciation specialist to actually have a look at it. Kevin: That’s actually a very good point – going to your Accountant – in all of these things. If you’re buying any property, you should always be checking with your Accountant and your Solicitor, and running it by them anyway. Brad: If they’re an Accountant who deals with property investors – and if you’re a property investor, you probably want that to be the case – they will probably have specialist depreciation guys that they regularly do use. Maybe the Accountant would want to ask their contact, just to get a double-check on that to make sure it’s not something done by the builder or something to make it look more than it really is going to come out at. Kevin: Is it reasonable that someone would want to get their own depreciation schedule done even if they are looking at buying? Would that help them substantiate those figures, Brad? Brad: That’s most definitely the certain way as a potential buyer of any property, not just one that’s new that has a depreciation estimate done. There are calculators on websites, and they’re free. You can go in and use them to check and see. Put some of the information in yourself, and see if it comes out close to what’s been provided. You can always talk to my guys about your particular property, and send us some photos. We’ll have a discussion and give you a rule of thumb based on what we can see. We don’t charge for that to have a bit of a look at it. If you want to be certain, you get one done properly, absolutely, but normally it’s done after the fact. We can get pretty close with an estimate, and we’ll give you a range. Whenever you’re plugging in and crunching your numbers on property, it’s always good to be conservative to start, and then at the end of the process anything else is a bonus. Kevin: Very good advice from Brad Beer, one of our recommended suppliers. Of course, all BMT Tax Depreciation’s details are on our website, and you can check out their featured channel, as well. Lots of great information there for you, and in fact a link straight back to their site, as well, if you want to check that. Brad, thank you so much for your time. We’ll catch up again soon. Brad: Great. Thanks, Kevin. This article was first seen on RealEstateTalk.com.au and you can listen to the full show at RealEstateTalk.com.au and while you’re there subscribe and receive their weekly podcast (or the transcripts) where Kevin interviews Australia’s leading property experts.

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