Deductions will haunt you, only if they go unclaimed

BMT team — Mon, 31 Oct 2016 01:09:23 +0000

There is an old proverb which has been quoted throughout history “nothing is certain but death and taxes.” On Halloween people around the world pay respect to the dead including saints, martyrs and the faithfully departed through a variety of celebrations. While many of you will dress up as goblins, ghosts or ghouls, go trick or treating and attend gatherings we thought we would to do something a little different to celebrate. This year we thought we’d prove that the above proverb concerning taxes is a myth. The reason being is that given the right information, the amount of taxes a property investor must pay can be reduced by claiming depreciation deductions and therefore is not a certainty. As Quantity Surveyors who specialise in providing depreciation schedules we spend our days estimating the construction costs of buildings. We do this because over time as a building ages it will experience wear and tear, or decay. The Australian Taxation Office allows property investors to claim deductions associated with this wear and tear. For many investors, learning about depreciation deductions can creep up quite unexpectedly. Of course, if left unclaimed, the lost cash flow which could have been achieved could indeed go on to haunt you. To show investors the difference depreciation claims can make, we estimated the deductions available for two properties, Monte Cristo Homestead in Junee, New South Wales and Dracula’s Haunted House on the Gold Coast. The depreciation count of Monte Cristo homestead The Crawley’s lived in the original homestead, a small brick cottage built in 1876, until 1885. At this time, Crawley added a double-story late-Victorian manor standing on the hill overlooking the town of Junee. The original homestead became the kitchen and servant’s quarters and stables were added in place of a slab hut to house Mr Crawley’s prized race horses. A dairy was then constructed as well as a wooden ballroom which stands directly behind the old homestead. While much of the original building of the heritage property took place prior to the legislated dates that investors can claim capital works deductions, our analysis estimated that if the current owners sold the property to a new investor, the new owner could claim a first year depreciation deduction of between $25,672 and $28,325. Over five years the owner could claim between $111,268 and $122,980 in cumulative deductions. This goes to show that it is worthwhile claiming on any property, no matter what age, as often renovations, refurbishments and plant and equipment lead to substantial claims. Today, Monte Cristo is operated as a tourist attraction and is open for ghost tours on Saturday nights. Many have reported seeing ghostly figures, strange lights, invisible forcefields and phantom sounds. These are said to be the result of a number of tragic incidents in the properties past, including the murder of a caretaker in 1961 and the imprisonment of a man in the dairy. A maid is also said to have fallen from a balcony and a stable boy burnt to death. The depreciation deductions of Dracula’s While the five floor walk through purpose-built haunted house of Dracula’s offers a far different experience for visitors than the historic and supernatural one they can have at Monte Cristo, being a fairly new complex it has deductions which would shock and surprise investors more than the optical illusions, horror displays, mirror maze and hidden tunnels of the ‘Aztec tomb’ and the inside of a human body found inside the building. If the property was purchased by an investor, they could claim between $154,376 and $170,626 in the first financial year. Over five years the owner could claim between $771,876 and $853,126 in cumulative deductions. As you can see, by far the scariest thought of all for property investors who don’t take advantage of depreciation deductions, is what they are potentially missing out on in their cash flow. It helps to know that you can ask your Accountant to amend your previous two financial year claims if you haven’t been maximising your depreciation claims. So what are you waiting for? If own a residential or commercial investment property and you would like to discover what you can claim, let us shock and surprise you. We can provide a free estimate of the deductions available in any income producing property. One thing is for certain; you can improve your cash flow scenario and take advantage of depreciation to reduce your taxable income today.

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Five ways Developers can benefit from property depreciation

BMT team — Thu, 06 Oct 2016 03:21:43 +0000

For anyone in the property investment game, tax depreciation is a vital tool in improving cash flow and maximising returns on an investment. Not just for investors, property depreciation is something Property Developers should take advantage of as well. Ultimately, it can be used as a sales tool to make a project more appealing to investors, improve the affordability of the project and help it sell faster. Here are five ways that property depreciation can assist Property Developers. 1. Appeal to savvy investors Investors love numbers. In order to determine if a property will be a viable investment, any savvy investor will want to crunch all the figures thoroughly before considering a purchase. Depreciation is a significant cost they should take into consideration in order to accurately work out the true cost of the property. Without depreciation estimates investors will be ill-informed and for developers, this could mean the difference between making a sale or the investor turning to another property with more concrete figures readily available. 2. Provides more detail for off-the-plan sales A qualified Quantity Surveyor can provide tax depreciation schedules for existing properties as well as estimates for those still in the construction stage. As outlined in Tax Ruling (TR) 97/25, Quantity Surveyors are recognised on the list of professionals deemed qualified to provide construction cost estimates. Construction cost estimates establish the depreciation potential of a property, and these figures and projections can improve buyer confidence in off-the plan purchases where there is no physical property for investors to inspect. To receive an estimate for a future or current project, developers simply need to supply a Quantity Surveyor with the purchase price list, a copy or draft of the strata plan, a schedule of finishes, basic floor plans and any associated marketing material. 3. Depreciation increases the affordability of the project Any new development will be more affordable when you factor in the property depreciation deductions that can be claimed. A depreciation estimate will outline what returns the owner can expect in the first year of ownership (often $5,000-$10,000 for a residential property), and every following year of the asset’s life. By showing owners these real figures, they can see their immediate and long term returns and not just focus on the initial upfront costs, thus making the project more affordable. 4. Get more depreciation from newer properties Depreciation deductions can be claimed for both new and older properties, but newer properties benefit more. Depreciation is made up of two components – capital work deductions (relating to the structure of the building, such as floors and ceilings) and plant and equipment assets (removable assets within the building such as furnishings). As set out by the ATO, the owner of a brand new property is eligible to claim the full deduction for the entire cost of the building structure over forty years. Owners of properties that are not brand new can only claim the remaining years available. In addition, new properties usually contain plant and equipment assets that are higher in value. This increases the depreciation deductions available for the owner. Therefore, investors who purchase a brand new property will be able to take advantage of the full forty years of capital works deductions, thus making tax depreciation beneficial for all new developments. This benefit is one which developers can communicate to buyers who might be tossing up between a new development and an existing property. 5. Make it easier for the buyer and improve your service Give potential buyers an easier and smoother decision making process. As mentioned previously, investor buyers will want to know depreciation estimates in order to make an informed purchase. Take some of the hassle out of the buying process for interested investors by providing these estimates in the sales package and having this information readily available. This way, they won’t have to go out and organise it for themselves and you remain the main point of contact for the development, improving your customer service offering and expertise. Depreciation estimates are available for both residential and commercial developments. Any developer wanting to learn more about property depreciation and how it can assist in selling their project should visit the Property Developers page on our website, or call our expert team on 1300 728 726 for obligation free advice.

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Deductions will haunt you, only if they go unclaimed

Five ways Developers can benefit from property depreciation