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6 tax benefits of owning an investment property

BMT team — Fri, 26 Apr 2024 01:37:43 +0000

There are significant tax benefits of owning an investment property, even if a property is not producing an immediate profit. Here are 6 tax benefits of investment properties all investors and property managers need to know about: Negative gearing Capital gains tax exemptions Claiming interest on your mortgage Equity loan withdrawals are tax free Small expenses Depreciation Negative gearing An investment property is negatively geared when the return, or rental income is less than the property’s expenses. Essentially, this means the property is making a loss and the cash flow is negative. This is not necessarily a bad thing; it actually can create a substantial tax benefit because the property owner can claim the loss as a tax deduction to offset their taxable income, meaning they pay less tax. If the rental payments are not covering the mortgage payments and other outgoing fees, the property owner can claim this loss as a tax deduction. Read more: Uncover additional benefits of negative gearing property Capital Gains Tax exemptions Capital Gains Tax (CGT) is the tax paid on profits from selling assets. When a property is sold, there is usually a gain or a loss. In the event of a gain, the seller needs to report this as income. The gain will then be added to their annual taxable income and the total amount will be taxed at the individual’s tax rate. There are discounts available if the individual has owned the asset for more than twelve months. A property owner is entitled to a fifty per cent discount on CGT if they have held the property in their name for more than twelve months, from the date of signing the contract. If a property is sold in a period shorter than twelve months, owners will have to pay full capital gains tax. This tax rate is dependent on the individual’s income. It’s important to note your main residence is generally exempt from CGT due to the ‘main residence exemption’. A home is classed as a main residence by the Australian Taxation Office (ATO) if it has been the home of you, your partner, or other dependants for the whole period you have owned it, has not been used to produce income, or is on land two hectares or less. There are other allowances for specific situations such as partial discounts for individuals who are renting out part of their home or using part of their home for an income-producing business. In these cases, CGT would be exempt for their part of the living area within the property. Claiming interest on your mortgage As an investment property owner, you can claim the interest charged on your investment property loan as a tax deduction. The interest is a cost obtained from money being made through the property. This can only be claimed if the property is being used to earn an income, owner occupied properties are not eligible for any tax deductions. Equity loan withdrawals are tax free If your property increases in value but you don’t want to sell, you can withdraw a portion of money through a home equity loan, perhaps for another property or other investment opportunities. The benefit of this is you don’t pay tax on these withdrawals. This is because you haven’t increased your financial position through deriving income, you are drawing out equity from the property in the form of a loan rather than selling to release the equity and generating a capital gain. It’s key to remember that the interest payments will only be deductible if used for other investment purposes. It’s important to always speak to a financial advisor before making big decisions. Small expenses There are many small deductible expenses which all property investors should be claiming. These could add up to thousands of dollars. Things like land tax, strata fees and council rates can be claimed as a deduction. Further examples of available deductions include insurance, legal expenses and bookkeeping costs. Deductable expenses can also be available to claim in cases where part of the property is being rented out or used to produce an income. Repairs and maintenance can be claimed immediately if they are directly related to wear and tear. However, if assets are solely replaced through renovations to increase the value of the property, these will need to be claimed as a capital works or capital allowance deduction. 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. All costs incurred to repair or maintain your investment property can usually 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. Depreciation As a building gets older, its structure and the assets contained within it wear out – they depreciate. The Australian Taxation Office (ATO) allows owners of income producing properties to claim this depreciation as a tax deduction. There are two different types of depreciation you can claim. Capital works (division 43) deductions can be claimed for the wear and tear that occurs to a building’s structure and items permanently fixed to the property such as built-in kitchen cupboards, clothes lines, and fences. Then there is plant and equipment depreciation (division 40) on items which are easily removable or mechanical in nature such as air-conditioning units, security systems and light fittings. An investment property owner will need a tax depreciation schedule to claim these deductions. A tax depreciation schedule outlines all available property tax deductions you can claim, and your accountant will then use it to lodge […]

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How do you know if you are ready to invest in property?

BMT team — Fri, 15 Jun 2018 04:15:30 +0000

Out of all the decisions that property investors have to make, that initial decision to take the plunge and purchase your first investment property is perhaps the most difficult. First time investors often hesitate, waiting for the right moment to enter the property game but struggling to know exactly when that is. Despite any concerns potential investors may have, it is important to know that their are long-term rewards. It is also important to acknowledge that property as an asset class plays a vital role. Statistics from the Deloitte Australian Mortgage Report for 2018 show that Australians hold 52 per cent of their wealth in housing. If you are considering if now is the right time for you to purchase your first investment property, here are a few things to keep in mind. Ensure it is a smart decision, financially Take a step back to consider your circumstances and how they are likely to change over the lifetime of your investment. Are you in stable employment? Do you have any debt? Do you have savings set aside for any sudden loss of income? Involve a trusted financial planner and talk budgets and investment strategies to ensure you are making an educated financial decision. Consider that you will need enough to not only cover the deposit, but other expenses such as conveyancing and legal fees. Now that you’ve decided that you’re in a financial position to take the leap and purchase your first investment property, it’s time to consider exactly how you’ll put your plan to action. Set yourself goals It’s a good idea to set yourself some manageable goals and create an investment plan. Think about what you want to get out of your investment and what you are going to do to ensure it is successful. Do you intend to use the extra income to aid your retirement? How much do you intend to borrow? What type of property are you looking for? It’s important to do your research of the property market in order to set achievable goals and ensure you are purchasing in a strong growth area. Remember that property investment doesn’t come with a guarantee for quick profit and it can take many years to see any rewards. Assess your equity If you are making mortgage repayments on your own home, you may be able to use equity to purchase your first investment property. Equity is the current market value of your property minus what you owe to the lender. As you make payments towards your home loan, your equity will increase and can be used to undertake renovations, purchase shares or even more property. If you have a mortgage and have been making mortgage repayments for some time, you will have accumulated equity. This can be tapped into as a way of easing yourself into the property investment game. Research, research, research The key to a successful investment property is choosing the right one. While this may seem obvious, many beginner property investors dismiss the importance of conducting area research prior to selecting a suitable property. Consider the risk involved in certain suburbs. Does the area depend on an industry such as mining which fluctuates and could alter housing demand? Does the area have a high crime rate? Don’t forget to think about environmental risks such flood or bushfire prone areas. Determining if you are ready to invest in property is a decision not to be made lightly. Property investment is a long term commitment and involves an element of risk. For this reason, it is important to have a good understanding of your personal financial circumstances and involve professionals to offer their advice. By undertaking the necessary research and continually remaining informed about the property market, investors can improve their chances at achieving the desired results and give themselves a better chance of long-term success.

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Tips and trends for a furnished investment property

BMT team — Tue, 21 Feb 2017 22:48:38 +0000

To furnish, or not to furnish your investment property? That is a common consideration for property investors. While there are both advantages and disadvantages to this approach, a furnished investment property can work well in the right market. But it’s important that you furnish it correctly to have maximum impact and make it worth your while. Here are nine tips to help you furnish your investment property. Contents: Decide on the style Colour considerations Level of furnishing Choose furnishings with your target market in mind Work with the space you have Choose the right materials Consider depreciation for your furnished property If it’s worth doing, do it well Make it homely with accessories 1. Decide on the style Rather than buying pieces ad hoc, it’s important to know what overall look or style you’re going for so everything you purchase will work in harmony. Will that couch match your carpet and go with the dining table you’ve already bought? The style you select should flow through the entire home – don’t try and assign different décor styles to different rooms. It’s also advisable to stick with a ‘middle ground’ look – don’t choose anything too polarising, like garish wall colours or quirky furnishings that will turn renters away. Also avoid following seasonal trends that will be out of fashion in a year’s time. Instead, opt for a timeless look with classic pieces that won’t date quickly. 2. Colour considerations When it comes to decorating a rental property, you can’t go wrong with neutrals. For core items like the lounge and dining table, stick with darker colours to disguise wear and tear a bit better, and then introduce pops of colour with some accessories. 3. Level of furnishing Are you going to partially furnish the property with core appliances and whitegoods or provide everything down to cutlery, clothes hangers and pegs? It’s important to decide this before you start making any purchases. A large consideration when deciding this will be your target market… 4. Choose furnishings with your target market in mind Is your investment property suited to student accommodation or an inner city apartment targeted at management-level professionals? Your target market will determine how you should furnish your investment property. If you’re hoping to attract students, you’ll generally only need basic pieces in the bedrooms like a single bed, a desk to work at and perhaps a TV. You also wouldn’t include anything too luxurious or high quality due to the higher turn around and increased wear and tear. If, on the other hand, you’re hoping to attract high-level professionals, you’ll want to appeal to this market with a few more luxuries, homely accessories and higher quality pieces. And if you’re furnishing a large family home in the suburbs, this would require different furnishings once again. Be realistic with your target market and furnish the property accordingly. 5. Work with the space you have It’s important to choose furniture specific to your property. This involves knowing measurements to buy appropriate pieces to fit and choosing furnishings that will suit the household size and type. If you’re furnishing a five bedroom family home, there’s no use supplying a small, two person dining table in the kitchen or one three person sofa. Providing insufficient or inadequate furnishings will be less appealing to tenants than no furniture at all. 6. Choose the right materials When choosing fabrics and materials, remember that you’re furnishing a rental property and will need something that will survive use over several tenancies. It might be better for instance to invest in a leather lounge that will stand more spillages and clean easier than a fabric lounge. With whitegoods, choose something that is easy to wash and take care of – if it can only be hand washed or washed using very specific instructions, it’s likely to get ruined or turn the renter off. 7. Consider depreciation for your furnished property While furniture may seem like a large outright expense, remember that you may be able to claim depreciation* on all of the furnishings in your investment property. You should also consider depreciation when choosing your furniture – certain items or materials may depreciate at a faster rate and give you bigger bang for your buck. 8. If it’s worth doing, do it well Don’t make your investment property a dumping ground for the old, unwanted furniture in your own home. An imposing, dated, free standing wardrobe that takes up half the bedroom floor space, for instance, will only turn renters away, as will tatty or dated furniture. Unless you’re going to furnish the property in a way that’s beneficial to tenants, it’s not even worth doing. Understand that furnishing your property correctly can boost your investment’s potential while a half-hearted or substandard job can damage it significantly. 9. Make it homely with accessories If you’ve decided to fully furnish the property, make it feel like a home and finish the look off with some lamps, artwork and area rugs to liven up the space. If they don’t love the artwork you’ve selected the tenant can always pack it away and place their own piece on the hook throughout their tenancy. *Under proposed changes to legislation, investors who exchange contracts on a second hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on plant and equipment assets. Investors who purchase a new property will be able to continue to claim these items as they were previously. We are currently speaking with government to further understand the intricacies relating to the proposed changes. To learn more visit www.bmtqs.com.au/budget-2017.

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Rentvesting is changing the Australian property market

BMT team — Tue, 12 Jul 2016 06:23:09 +0000

The latest buzz word around the property industry is rentvesting. A portmanteau of ‘renting’ and ‘investing’ which is becoming an increasingly common approach for new property buyers to enter the market. It is pitched as a way to circumvent the issue of lifestyle vs property ownership, but is also a result of ever increasing property values pricing new buyers out of centrally located areas. For the younger generation in particular, rentvesting has become an increasingly popular method to surpass issues of housing affordability. The trend has seen two distinctive types of new investors become more active in the property market. The first are those who choose to continue living at home with Mum and Dad while purchasing a property they might like to live in later in the future. These investors choose to rent the property they own for now for a number of reasons, the main being that it is more cost effective and enables them to readily afford mortgage repayments due to the constant income that rent provides them with. The second category of rentvestors are those who don’t necessarily have the luxury or the option to live at home with their parents. These are investors who rent in less affordable locations where they would like to live whilst purchasing a property in suburbs that are more affordable to enter the market. In this article we will look at: Where do you look to rentvest? The advantages of rentvesting The disadvantages of rentvesting Where do you look to rentvest? Essentially, rentvesting involves buying a property in an emerging area while renting in an already established one. This enables people to enjoy things such as the café culture and night life that the CBDs of cities are known for, without paying the cost of a mortgage to live there. Typically, the cost of a mortgage payment each week in these areas is far higher than it would be to rent, while in other areas, the rental cost and mortgage cost are roughly the same. For example, a nice apartment just a few minutes from the CBD by public transport may cost around $400 per week to rent, however it would be perhaps $800 per week as a mortgage payment. Rentvesters generally purchase a lowered priced property in an area with a strong prospect for growth and consistent rent prices. The rent they receive will pay their mortgage, while they rent a house in an area they want to live in, just as anyone else would. For this reason, rentvesting appears to make sound financial sense. But there are advantages and disadvantages when you consider the other aspects of buying and renting? The advantages of rentvesting Freedom The main pro of rentvesting is the freedom it provides. It enables you to live the lifestyle you desire, while still working towards property ownership. Buying and occupying limits you to a house in a neighbourhood you can afford right away, but an investment property in an emerging area can provide a way to pay the mortgage and build your future financial security. Flexibility Renting in the city gives you the flexibility to move to a smaller or larger home as needed, with relatively little hassle, aside from breaking a lease and the moving itself. The lack of permanency usually presented as a negative for renters, becomes a positive for rentvesters. Additionally, a great place to live may not be a great place to invest. As stated above, the potential rental income from some locations will exceed others. However, the rental yields don’t go up with the price of the property and the owner’s mortgage needs. Instead, they are dependent on the socio-economic factors of the neighbourhood itself. A greater indicator of the rental income possible is the access to the amenities such as transport, public works like parks and the proximity to the main business district, universities and shopping precincts as well as the overall desirability of the area as a fashionable place to live. Generally, this makes it more affordable to rent a house in these areas than attempt to buy a property, as the rent rate will hit a ceiling that is much lower than the weekly mortgage payments. Tax benefits One of the main advantages of rentvesting is the tax breaks. An investment property makes you eligible for a huge number of deductions, but it you make it your home, you are not entitled to claim any of them. According to the Australian Taxation Office, the expenses you can claim on include: Water and council rates Home insurance Tenant advertising Agent fees and commission Pest control, cleaning and gardening bills Repairs and maintenance Depreciation deductions for the wear and tear that occurs to the structure of the building and the plant and equipment assets contained Land taxes Interest on mortgage repayments The disadvantages of rentvesting Renting Rentvesters are still subject to all the same issues that standard renters face. It always feels like a temporary solution, which makes it harder to feel connected to a home and settled. You will have to deal with landlords and Property Managers when necessary repairs are required and you have no power to personalise the property beyond your furniture and perhaps a few pictures on the walls. The changing Australian property dream Renting while owning a property requires the ability to understand the big picture. The aim of future stability pales in significance with the immediate emotion surrounding home ownership. Generations of Australians have dreamed of buying a house and owning a block of land. Purchasing then giving it up to rent and pay someone else’s mortgage can seem counter intuitive and can diminish your happiness at entering the ranks of property owners. What you should consider to make rentvesting work for you Research the areas where you want to invest and rent. Find locations with lower purchase prices but consistent rent rates. In general, properties tend to double in value every ten to twelve years, […]

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Don’t move house… renovate

Chan Naylor Team — Thu, 30 Jun 2016 05:10:50 +0000

Moving could cost you a fortune I see many clients that move from house to house throughout their lifetime and they do that for various reasons. The house is too small for a growing family, they need to be closer to schools and transport, or maybe they want to live in a different area. All are legitimate reasons however if you stop and assess what its costs to move house each time, you may think twice and consider staying put. So what is the actual cost of moving house? Well beyond the emotional strain placed on people when they move let’s look at the ‘hard costs’ by taking a sale of an average home in Sydney and Melbourne of say $1,000,000 and then assume an upgrade to a new house worth $1,500,000. Firstly, we have to contract an agent to manage the sale of our existing property and he will generally charge you around 2 per cent plus GST so that’s approximately $22,000 (2.2 per cent of $1,000,000). Now let’s take the stamp duty on the purchase on the new property of 1.5m (using NSW stamp duty) would be approx. $69,000. Legal fees for your lawyer to handle settlement would be say $2,000.00. Other associated costs say $5,000. Total cost upfront to move house in this example is approximately $100,000 which leaves us now with only $900,000 to buy a house worth $1,500,000 assuming there is no debt. On top of this we may now need to borrow $600,000 to make up the gap ($900,000 – $1,500,000) and let’s assume an interest rate of 5 per cent, therefore the interest would be $30,000 per annum. Let’s keep it simple and look at the cost of simply staying put and renovating. Let’s assume it will cost you $500,000 to renovate your existing home to an equivalent standard of what you need. Borrowings required of $500,000 @ 5 per cent = $25,000 in interest per annum compared to $30,000 interest per annum if we moved. That is a saving of $5,000 pa over twenty years = $100,000 saving. But let’s say we could also unlock equity by borrowing that extra $100,000 we have saved by renovating our existing home and by staying put and then used that extra amount as a deposit on an investment property worth say $500,000. Example: purchase another investment property with the $100,000 $75,000 – 15 per cent borrowings plus costs (we had a saving of $100,000 by staying put and renovating and assume $25,000 in acquisition costs leaving $75,000 for a 15 per cent deposit on the investment property) $425,000 – 85 per cent borrowings from bank (Assume mortgage insurance) $25,000 – borrowings costs of purchase $525,000 – purchase price, costs and total borrowings for investment property Let’s now calculate the cost of holding this investment property over time, assuming a net rental return of 4 per cent. Net rent – $20,000 ($500,000 @ 4 per cent) Interest on loan – $26,250 ($525,000 @ 5 per cent) Net tax deductible loss – ($6,250) per annum assuming a 46 per cent tax rate actual cash loss after tax claims = ($3,375.00 per annum) Remember we would have saved $5,000 pa by staying put and renovating for $500,000 and not borrowing $600,000 to move house which means from a cash flow perspective we are better off by $1,625.00 per annum net of tax savings ($5,000.00 – $3,375.00). Assuming after renovations the property value base is $1,500,000 plus, we have another Investment property of $500,000 that gives us a $2,000,000 capital base with better cash position to fund it. Assuming that the property value will double every ten year principle applies, in twenty years your asset base of $2,000,000 has increased to $8,000,000 ($2,000,000 x 2 = $4,000,00 x 2 = $8,000,000) compared to if you had moved a potential capital base of $6,000,000 ($1,500,000 x 2 = $3,000,000 x 2 = $6,000,000). Note: These numbers above are approximates and just a means of an example and I do realise that there would be variables, but the point I am trying to make is that you should carefully consider the long term cost before you decide to move house. I appreciate we all have personal reasons for wanting to move but you need to be aware from a financial point of view that it may not be the best outcome and could cost you hundreds of thousands if not millions over a twenty year period. These numbers are only to provide an example, always seek professional advice on your personal situation before making any investment decisions. For further information about how Chan & Naylor can help assist you visit www.chan-naylor.com.au or phone 1300 250 122.

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Top tips for property investment success in 2016

Bradley Beer — Mon, 18 Jan 2016 05:17:44 +0000

2015 was a very interesting year for property investors. We’ve had unprecedented growth throughout the Sydney and the Melbourne market. This meant that it became harder to buy in these markets. Rental yields have been decreasing, meaning that investors have less cash flow available to ensure their numbers stack up and owning an investment property remains affordable. APRA has also increased regulation on the banks to slow investor lending. What this has meant for new investors is that it is not as easy to get a loan as it has done in the past. For existing lenders, the banks actually increased interest rates, which is something we haven’t seen for investors only for some time. I think it is very important to learn from the past and to be prepared for what a New Year will have to bring. With this in mind, we would like to share some of our resolutions and tips as a property investor in 2016. Go outside my comfort zone Often investors will look close to home buying an investment property, especially when it’s a first purchase. This year, look at the historical growth of areas outside your comfort zone, perhaps surrounding suburbs or even other states that could provide better returns. Don’t follow the herd Investors tend to rush into hot spots and often are guilty of overlooking other possibilities. It’s important to look at the rental yields which can be achieved as well as to do your research on price growth in the area over recent years. Look for the long term possibilities in an area, rather than just for properties which may offer only short term gains. Look at the complete picture Ask yourself the question, ‘do I have a real understanding of the costs involved in holding an investment property?’ While many investors will find out what income can receive, less rarely will they find out all of the expenses involved. A depreciation estimate allows investors to crunch their numbers so they can get a complete picture of their situation including what deductible expenses they can claim before they decide to buy a property. Budget now for the future Everybody gets busy and sometimes attention to your budget can easily get left aside. It’s important to check in on your budget regularly and make improvements along the way so you don’t get caught out at the end of financial year.Consider ways to take advantage of available deductions throughout the year rather than waiting such as a Pay As You Go withholding variation. These valuable dollars can be used for repairs, maintenance and even improvement on your property now rather than at the end of the year, or put into an offset account to help reduce interest on your loan. Learn from the experience If you have invested in property in the past, your experiences can help guide you when making decisions in the future.Sometimes the best lessons are learnt from the mistakes you have made and sometimes they come from the successes you have had.Consider reassessing your existing portfolio. Ask yourself while doing so what improvements you can make to get a better result from the properties you already own as well as potential new purchases in the future.It is also important to continually keep educating yourself. Watching market predictions, hot spots and evaluating the data can assist; however remember that the market can change and sometimes be difficult to navigate. Simply by seeking advice from the experts when you need it and following these handy resolutions, your 2016 investment journey is sure to be a successful one. Best wishes for the New Year from all the team at BMT Tax Depreciation. We look forward to assisting you with all your depreciation needs throughout 2016.

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Northern inland NSW property scorecard

Simon Pressley — Fri, 15 Jan 2016 04:58:56 +0000

The property markets of ten out of the thirteen local government authorities (LGAs) which make up the New South Wales’ region of Northern Inland are ranked in Australia’s Top 30 per cent of property markets over the last fifteen years. Gunnedah and Liverpool Plains were the equal best performing markets in the region with a national ranking of 38th out of the 550 LGA’s in Australia. The median house price in Gunnedah increased from $80,000 at the start of 2000 to $290,000 by the end of 2014. The average annual growth rate of 9.6 per cent plus the 5.8 per cent rental yield equates to a total annual return of 15.4 per cent. Liverpool Plains’ median house price increased by an average of 7.9 per cent per annum and its average rental yield is 7.5 per cent. Propertyology conducted a study to compare the historical property market performance of each of Australia’s 550 local government authorities between 2000 and 2014. Given that some property markets have higher rates of growth and others have higher rental yields, Propertyology calculated the ‘total return’ (average annual growth rate plus rental yield) and we then ranked the LGA’s from 1 to 550 based on this performance. Glen Innes (ranked 70th), Narrabri (49th), Moree Plains (81st), Guyra and Inverall (equal 92nd) all featured in Australia’s Top 100. Tamworth had the highest population growth rate in the region – 1.1 per cent per annum for the last ten years compared to the 1.6 per cent national average. With a population in excess of 60,000 people, Propertyology regards Tamworth as an exceptionally strong regional service centre with an economy which is comparable to capital cities in regards to industry diversity. Tamworth’s property market was equal 163rd (with Uralla), making it amongst the best 30 per cent based on overall historical performance for the last fifteen years. Tenterfield (107th) and Armidale (173rd) out of 550 also performed exceptionally well. Propertyology’s study concluded that population growth doesn’t have the big influence on overall return as many think. The historical evidence shows numerous locations performed strongly in spite of modest, or even no, population growth. For example, Moree Plains’ population declined by an average of 0.6 per cent per annum and both Narrabri and Liverpool Plains had zero population growth, yet they all performed better than each of the 43 LGA’s in Greater-Sydney. Affordability and lifestyle are the common denominators. The Northern Inland region contains locations which tick a lot the boxes that Propertyology looks for when helping mum-and-dad investors to take advantage of the many opportunities that Australian property markets have to offer. Gwydir was the region’s worst performing property market, ranked 417th.

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Celebrate Christmas and remember your tenants will too

BMT team — Wed, 23 Dec 2015 22:21:31 +0000

It’s that time of year when families gather around the dining table to dig into a Christmas roast, peel some fresh prawns to dip in some thousand island dressing or indulge in a sizzling barbeque in the backyard. While an investment property is likely to be far from the minds of most investors at this time of year, it is still a good time to think about how many of the items you’re using to make this Christmas a safe and memorable one are also being used by your tenants in a similar fashion. To get into the festive spirit, we wanted take a look at some of the depreciable assets used at Christmas time and why they are not only important to helping your tenants enjoy some seasonal down time, but also to helping investors improve their cash flow all year long. Air conditioners An Australian Christmas will often mean one thing – hot weather. Like their landlords, tenants will want to stay cool over the holidays. Most properties are equipped with either split or ducted air conditioning that can chill an Australian heat wave down to a few levels short of becoming a white Christmas. These assets can also enable the owner to claim substantial deductions. If an owner is planning on installing or even replacing an air conditioner in their investment property, they should be aware that split system and ducted air conditioners each depreciate over a different effective life and depreciation rate. Split system air-conditioners have an effective life of ten years and diminishing value rate of 20 per cent, while ducted air conditioning units will depreciate over fifteen years at a rate of 13.33 per cent. While ducted is obviously more expensive to install, if an investor were to only spend $5,000 on cooling, it is the split system air conditioner which would earn them the greatest depreciation deductions in the first financial year. At a cost of $5,000 an investor can claim $1,000 in deductions on a split system and for a ducted air conditioning unit for the same price they could claim just $667. Ovens All those ovens around the country which are carefully roasting Christmas hams are also deductible assets for investment property owners. Using the diminishing value method, an oven worth $1,019 will result in $170 worth in deductions in the first financial year for the owner. Be mindful that these items also need careful attention. Next time you’re whipping out the gloves and oven cleaner think about when the last time your Property Manager performed an inspection and may have checked the oven. For Property Managers, the oven often gets overlooked during regular inspections and it can be particularly hard for tenants to keep it clean if they plan on vacating the property later if it has not been done on a regular basis. Consider whether getting a professional oven cleaner in is an option, there are a number of providers who can do so and any maintenance costs involved in doing so are also a deductible expense for the owner of the property. As ovens have an effective life of just twelve years, if the asset is getting on the older side, it could also be time for a much needed update. Barbeques Barbeques are also an asset which often gets forgotten and may only be used seasonally by tenants. Although not as often found in rental properties, freestanding barbeques which may get exposed to the elements wear out quickly, with an effective life of just five years. Consider getting a freestanding outdoor garden shed to keep it out of the weather between use. Using the diminishing value method – a freestanding barbeque which set an investor back $4,500 would result in $1,478 in deductions. If a barbeque is a fixed asset, remember that structural items are claimed as capital works deductions, meaning the structure of the barbeque itself will be claimed at a rate of just 2.5 per cent per year. The sliding trays and cookers within the barbeque can be claimed however at a diminishing value rate of 20 per cent over an effective life of ten years. Building that freestanding outdoor garden shed might cost $855 but its well worth protecting those garden assets when you consider this will result in $160 in deductions in the first financial year also. Security devices While Christmas is mostly about sharing and happiness, unfortunately the season can also bring the unwanted attention of thieves. If you haven’t already, it is worth thinking about installing a security device into both your home and your investment property to keep things safe and sound. A full closed circuit television system so tenants can keep an eye on their property whether they are at home or even away during the holidays could cost the owner of the investment property $1.550 but also result in $775 worth in deductions in the first financial year. Smoke alarms In most states across Australia, smoke alarms must be fitted and comply with standards set by the Building Code of Australia. Most homes will have two devices which should be tested regularly. Landlords should give tenants notice before they come to fit or update existing smoke alarm systems and be particularly considerate if you are planning on doing so around the holidays. These little devices which no doubt will emit beeps to let you know if that Christmas turkey is over baked are also deductible for the owner. As they should cost under $300, the owner can claim these items as an immediate deduction. Smoke alarms costing around $145 for example will see the owner receive this same cost as a deduction in the first financial year after installation. Swimming pool assets While the kids are creating waves by bombing the deep end of the pool over the break, remember the pool of an investment property needs particular attention all year around. Chlorinators and filtration assets all wear out so once a year think about checking these devices […]

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Depreciation deductions add up in the heart of a home

BMT team — Thu, 12 Nov 2015 04:03:21 +0000

They say that a kitchen is the heart of a home and this couldn’t be truer than when a property is used for investment purposes. For tenants the kitchen may be a hub where the whole family comes together at the end of each day, but for landlords this part of a property has even more importance. This is because the items contained within the kitchen of an investment property not only influence current rental returns received and potentially play a role in future capital growth, they also contain many of the most valuable depreciable items an owner can claim deductions for. Owners of income producing residential properties are entitled to claim capital works deductions for any of the structural items that commenced construction after the 15th of September 1987. They are also entitled to claim depreciation for any plant and equipment asset using their individual effective life as legislated and enforced by the Australian Taxation Office (ATO). The kitchen in any residential investment property contains a significant number of depreciable items an investor can claim. Examples of structural items eligible for capital works deductions include the kitchen cupboards, bench tops, sinks, the pantry and tiled floors. Common plant and equipment assets found in a kitchen include dishwashers, ovens, cook tops, range hoods, microwave ovens, light fittings, refrigerators, floating floors and garbage disposal units. To examine the depreciation deductions a property investor can claim in the first financial year within the kitchen of an investment property, let’s take a look at the following graphic. In total, depreciation deductions in the first financial year for items found in the above kitchen amount to $2,496. This is a significant amount which an investor can claim to help reduce their annual income tax. Structural items found in the picture such as kitchen cupboards, benches and tap ware will be claimed as capital works deductions at a rate of 2.5 per cent per year over forty years. So while assets such as taps and sinks will only see a first year claim of $5 and $12 respectively, over forty years these items will entitle the owner to a total of $680 worth in depreciation deductions. With a first financial year deduction of $560, kitchen cupboards and bench tops will equate to a total $22,400 in deductions over forty years. While a number of the plant and equipment assets found in the above kitchen (for example the coffee machine, the knife block and the microwave) have a depreciable value of less than $300, these items will entitle their owner to claim their full value in the first financial year. This is because legislation allows rental property owners to claim an immediate write-off for any asset worth less than $300 in the year of the items acquisition. To ensure that the maximum depreciation deductions are claimed for any investment property, it is recommended that rental property owners seek the advice of a specialist Quantity Surveyor. They will complete a comprehensive tax depreciation schedule which includes a full site inspection of the property to ensure no deductions are missed. During the site inspection, a specialist Quantity Surveyor will take measurements and photograph every depreciable asset found in the property. They will also look for less obvious renovations which may have been completed by a previous owner of the property. Kitchens are popular rooms to renovate, however work that has been completed is not always obvious. Previous renovations can be easily missed without seeking expert advice, for example new plumbing and electrical wiring. Quantity Surveyors will also do the relevant searches necessary and consult with industry bodies such as councils to gather the information required to produce a depreciation schedule. Once a comprehensive depreciation schedule has been completed, an investor can use the information outlined in the report to claim the deductions available with their Accountant when they complete their annual income tax assessment. The deductions in a property add up and can have a significant impact on improving an investor’s annual cash flow. Complete the form for an estimate of likely depreciation deductions for any residential investment property or call 1300 728 726 today. This article was first seen on Sourceable.net and you can view the article at sourceable.net/kitchen-depreciation-deductions-add-up/

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Nine tips and nine traps of property investing

Chan Naylor Team — Mon, 18 May 2015 07:42:51 +0000

Wealth creation has become a primary target for most people and many are finding property investment an effective way to hit this target. In Sydney and all throughout Australia there are said to be more than 1.7 million property investors, and a quarter of these have investments in more than one property, according to the Australia Taxation Office. While property investing can be rewarding, you can’t fully reap these rewards if you don’t know what you’re doing. This is why each investor needs to be fully aware of what needs to be done to ensure property and financial growth. Here are a nine tips you should keep in mind to get you started. 1. Plan – start with the end game in mind Map out and write down your goals and vision for what you want to achieve (this could be financial or lifestyle goals) and how the next property will help you reach them. It’s important to know the purpose of your next investment and to regularly remind yourself of the end game. For some, it could be they are looking to build up their portfolio to create a passive income stream to fund retirement one day. For others, it could be that they want to create a ‘business’ of buy, renovate and sell to release them from their ‘day job’ or it could be to create an instant cash flow stream to improve their family lifestyle with a holiday home. There are a myriad of reasons why someone would want to invest in property and for each reason there should be a carefully planned strategy on what steps you need to take to fund the investment, maintain it, improve it, or sell it at various stages in line with the original intent of purchase. For example, if you know from the outset your investment will be for a buy, renovate and sell strategy, then decision making factors like property type, location, budget, loan type and return on investment expectations will look entirely different to someone looking to purchase a family holiday home. Knowing what you want from the start with careful consideration of what the purpose of your investment will be makes the next steps a little easier. This approach will also keep you focused on your long term vision and help you have a balanced perspective when you experience ‘speed bumps or ‘pot holes’ along the road. 2. Determine your property investment budget with the help of your Accountant This is one of the most important factors that you need to consider before you choose a property to invest in. Set a clear budget for the investment and make sure to include not only the purchasing price but also additional costs you will incur such as stamp duty and legal costs. Most importantly, you also need to factor in maintenance costs, including initial renovation (if needed) and ongoing repairs. Involve your Accountant along this journey and get them to review your figures to make sure it all adds up. The golden rule is measure twice, cut once. 3. Seek tax planning and investment structure advice from a specialised property Accountant Knowing why you buy is as important as knowing what to buy. But knowing how to buy is the most crucial of all. People often ask us the perennial question, ‘What name do I put on a contract?’ Sadly this occurs the Monday after the auction. Most investors tend to purchase investment properties in their personal name. There are many tax implications as well as asset protection issues and estate planning limitations which you should discuss with your Accountant first before you think about investing. This is why having a plan in place will help to give some clarity as to what you want to achieve. A good Accountant who understands property will be able to guide you through the process and help set up the necessary investment structures if appropriate for your situation. 4. Set up your ownership structure(s) It will add to the overall cost of the investment, but if set up correctly will literally save you thousands in tax savings and give you the required flexibility for your investment plan. 5. Speak to a Mortgage Broker about getting the right loan for your investment plan and ownership structure Good Mortgage Brokers will give you unbiased advice on a range of loans from a variety of lenders. Armed with your investment plan and budget in mind, seek advice on current interest rates and property market conditions to determine if principal and interest or interest only loans are suitable and whether you should be on a fixed or a variable rate at various stages over the life of the loan. Always get pre-approval before making any investment decisions. 6. Do extensive research to find viable markets and the best locations With your investment plan, ownership structure and finance ready to go, it’s time to go shopping. But before you do, first do your homework. Researching to find the best location and market to invest in is very important. If you’ve hired a Buyer’s Agent to help you, don’t just rely on their advice – do independent research as well. Find and download suburb and property reports and use research tools like realestate.com.au or realestateinvestar.com.au to help find the right property. One essential factor to look for in considering the location is its property growth cycle. Australia’s property cycle as a whole is on a mature stage as major cities have been experiencing a steady rise since 2012, when it bottomed. However, looking at the individual markets you’ll find that these are fragmented with each city offering a different set of highs and lows. It is important to take a closer look at each of these markets to determine where best to invest in. Learn more: Chan and Naylor’s Wealth for life and asset protection 7. Invest in capital growth Knowing the market conditions and property cycle, even if the property is negatively geared in the short term (i.e. […]

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