» Investor tips

Missed claiming depreciation last financial year? It’s still not too late!

BMT team — Fri, 12 Jul 2024 23:52:02 +0000

You don’t need to daydream about a lottery win to get thousands in your pocket. If you’re a property investor, a natural process called depreciation means you can claim thousands, sometimes tens of thousands, without spending any money. BMT research suggests that approximately 80 per cent of investors fail to take full advantage of property depreciation. In some instances, it’s because they aren’t aware of when they are eligible to claim. BMT has answered your questions about when you can claim depreciation, and what to do when your tax depreciation schedule isn’t prepared before June 30. Contents What is property depreciation and how do you claim it? Order a schedule after June 30 and still claim for the last financial year Your tax depreciation schedule starts from your settlement date Genuinely available for rent Partial year deductions Key points: A tax depreciation schedule can be completed after June 30 Depreciation deductions start from your settlement date, not when the report was completed Depreciation can be claimed if the property is genuinely available for rent Partial year deductions are available for all investment properties What is property depreciation and how do you claim it? Depreciation is the natural wear and tear of a building’s structure and assets. If you’re an investor, you can claim this depreciation as a tax deduction. Depreciation is called a non-cash deduction because you don’t need to spend any additional money in order to claim it. A tax depreciation schedule is an essential piece of the depreciation puzzle. The first step of this process is a site inspection completed by a specialist site inspector from a quantity surveying firm. From here, the firm prepares a tax depreciation schedule that includes all depreciation deductions available. An accountant uses this schedule to determine your deductions at tax time. The tax depreciation schedule lasts the life time of the property and can be revised if any changes are made, such as a renovation. Order a schedule after June 30 and still claim for the last financial year You can still claim depreciation for the last financial year if your property’s tax depreciation schedule is completed after June 30. For example, if you ordered a tax depreciation schedule in July 2024 you can still claim depreciation deductions for the 2023/24 financial year. The only difference ordering a schedule before June 30 makes is how quickly you can claim back the schedule fee. This 100 per cent tax deductible fee can only be claimed in the year it was paid. Your tax depreciation schedule starts from your settlement date It’s important to know that it’s never too late to claim depreciation. When depreciation is missed in previous years, a tax depreciation schedule lets you claim back missed dollars. This is because the schedule starts from your settlement date, not the date the schedule was prepared. If you own a second-hand property and can’t claim depreciation on previously used assets, it’s important to let the quantity surveyor know of any new additions you have added to the property. This will allow you to claim depreciation deductions on them as they aren’t affected by the 2017 legislation changes. Genuinely available for rent Your investment property doesn’t need to be leased to allow you to claim depreciation deductions. As long as the property is ‘genuinely available for rent’, depreciation can be claimed. This means if there’s a gap where you are searching for new tenants, depreciation deductions are still available. Partial year deductions You can still claim depreciation deductions if you settled the property during the financial year, or if it’s only available for rent for part of the year. A tax depreciation schedule considers what is called ‘partial year deductions’. This means even if there is only a few days, weeks or months left in the financial year, depreciation deductions are still available. Partial year deductions are calculated on a pro-rata basis using the time the property was used as an investment. There are also mechanisms in depreciation legislation that a specialist quantity surveyor will apply to increase the claim for a partial year, even if the partial year is only a few days. This includes the immediate write off and low value pooling which allows you to claim particular qualifying new assets in full or at an accelerated depreciation rate regardless of how long they were owned. BMT specialises in preparing comprehensive tax depreciations schedules. We ensure that nothing is missed and that the highest level of compliance is maintained. To learn more about depreciation and the services offered by BMT, Request a Quote or contact the team on 1300 728 726.

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Tax return dates Australian property investors must know

BMT team — Thu, 18 Jan 2024 00:42:41 +0000

Missing a tax deadline is not only stressful but can set a tax return back and potentially result in fines or legal penalties. Never miss an important tax date again by adding the following dates to your 2024 calendar. 2024 key tax dates Tax return lodgement dates vary between individuals, companies, trusts and partnerships. The key factors that determine an individual or entity’s relevant return date is the amount of their tax liability, entity size and if they lodge their tax return themselves or do so through an accountant. January 30 February 28 March 31 May 15 June 5 June 30 October 31 December 1 How to keep track of income and expenses throughout the year January 30 Large and medium trusts with a total annual income of more than $10 million in the latest year lodged and where the trust was taxable in the previous year of lodgement must lodge their tax returns on this date. February 28 Large and medium trusts with a total annual income of more than $10 million in the latest year lodged, where the trust was non-taxable in the latest year lodged, must lodge their tax returns on this date. This lodgement date includes newly registered large and medium trusts. Subsidiary members of a consolidated group that exited the consolidated group in the financial year, and new registrants of head companies of consolidated groups must lodge their tax return by this date. March 31 Individuals, partnerships and trusts with a tax liability of $20,000 or more must lodge their tax returns on this date. This does not include medium or large trusts. May 15 If an investor lodges their tax return via an accountant, the previous financial year’s return must be lodged by this date. Tax returns for all remaining individuals and trusts are also due on this date. Non-profit organisations with a requirement to lodge and which haven’t been allocated an earlier lodgement date must also lodge their tax returns by this date. This includes new registrations and entities not eligible for the 5 June concession. New registrants, excluding large and medium taxpayers, head companies of consolidated groups and SMSFs must also lodge their tax return by this date. June 5 Although 5 June is not an official lodgement date, the ATO allows lodgement of tax returns past the lodgement due date of 15 May for individuals, partnerships and trusts who meet the necessary criteria. You do not need to apply for a deferral to receive the 5 June concession date. This concession allows the tax returns to be lodged by 5 June without penalty, provided any payment required is also made by this date. June 30 The end of the financial year is a key tax date that should be marked in everyone’s calendar. Taxable income and expenses are measured in each financial year and 30 June signals the end of the formal financial year. Investors are encouraged to pay all the expenses they can, before the end of the financial year to ensure the best return. Where possible, expenses such as interest, insurance, tax depreciation schedules and other ongoing expenses should be pre-paid before this date, to ensure that they can also be claimed in the same financial year of payment. October 31 If an investor is lodging their tax return through the ATO’s online MyTax portal, they must lodge the tax return of the previous financial year by October 31. The same date generally applies to all self-lodged returns including partnerships, self-managed super funds, trusts and sole traders, unless lodged through a registered accountant or otherwise advised. Entities with one or more prior year tax returns outstanding as of 30 June 2024 and other entities who have been advised to lodge early must lodge their tax return by this date. December 1 Companies that are not full self-assessment taxpayers must lodge their tax returns by this date. How to keep track of income and expenses throughout the year Be prepared and ensure a stress-free tax time by keeping diligent record of all income and expenses throughout the financial year. Keeping track of income and expenses with an investment property is easy with a MyBMT account. The various tools and features available on a MyBMT account, helps thousands of investors record and track investment property related income and expenses, simplifying the process of sharing expenses with their accountant. Accountants and Property Managers can access records and manage various properties on a centralised MyBMT account. BMT Tax Depreciation is ATO compliant and works closely with accountants to ensure maximum property depreciation deductions for each client. To maximise the property depreciation tax deductions on your investment property Request a Quote or contact the BMT Team on 1300 728 726.

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Claiming depreciation on your rental property

BMT team — Mon, 25 Sep 2023 02:05:17 +0000

Imagine buying a lottery ticket that won you almost $9,000. It would be pretty amazing, wouldn’t it? Think of all the things you could do with the additional money – pay off debt, buy that new lounge, renovate the bathroom. What if we told you that on average residential rental property investors can claim this amount in depreciation deductions in the first financial year alone, but around 80 per cent fail to do so. This is because depreciation is a non-cash deduction, meaning that unlike expenses such as interest and property management fees, an investor doesn’t have to spend money to be eligible to claim it. As a result, it’s often missed. If you haven’t been claiming depreciation on your rental property, here are some fast facts to help you better understand what it is and what you can claim. In this article, we will answer the following questions: What is rental property depreciation? What are capital works deductions? What are plant and equipment assets? What are the 2017 legislation changes and why do they matter? What rental properties benefit most from depreciation? Should you get a tax depreciation schedule following a rental property renovation? Can you claim depreciation on a fully renovated rental property? How can you claim depreciation on a rental property? What is rental property depreciation? As a property gets older, the building’s structure and the assets within it wear out – they depreciate. The Australian Taxation Office (ATO) allows owners of residential rental properties to claim this depreciation as a tax deduction. Depreciation can be claimed under two categories – capital works and plant and equipment assets. What are capital works deductions? Capital works deductions relate to claims for the wear and tear that occurs to the structure of the rental property and any fixed items like the roof, walls, doors and kitchen cupboards. Owners of residential property that commenced construction after 15 September 1987 are eligible to claim capital works deductions. These deductions can be claimed at a rate of 2.5 per cent per year for forty years. If your rental property was constructed before this date, you should still enquire about the depreciation deduction available as often these buildings have undergone some form of renovation which can result in capital works deductions. What are plant and equipment assets? Plant and equipment assets refer to the easily removable fixtures and fittings found within a rental property. Common examples include carpet, blinds, air-conditioners, hot water systems and smoke alarms. Depreciation deductions for these assets are calculated based on their individual effective life as set by the ATO. Unlike capital works deductions, depreciation for plant and equipment assets was affected by the 2017 legislation amendments. What are the 2017 legislation changes and why do they matter? Legislation passed in November 2017 brought about major changes to residential plant and equipment depreciation claims. These changes are important because they affect the amount of depreciation you can claim. Under current legislation, owners of second-hand residential properties who exchanged contracts after 7:30pm on 9 May 2017 cannot claim deductions for previously used plant and equipment assets. You can still claim depreciation for any brand-new plant and equipment assets you purchase and install in the property once it is income producing. For example, if you purchase a new hot water system while your property is being leased, you are entitled to claim depreciation for this asset. What rental properties benefit most from depreciation? While almost all residential property investors are able to claim depreciation, given the 2017 legislation those who build or buy brand new rental property will usually claim higher deductions. However, any residential property that has either been built or renovated since 1987 will have a structural claim that will give ongoing deductions for forty years. I want to renovate my rental property. Should I get a depreciation schedule? If you’re considering renovating your rental property, it’s important to have a tax depreciation schedule prepared. There may be substantial depreciation deductions available for structural elements and plant and equipment assets removed during the renovation. A process known as scrapping allows investors to claim any undeducted entitlements for eligible assets in the year the items are removed. It’s important to note that if you live in the rental property while renovating, any newly installed plant and equipment assets will be classed as previously used. This means the assets cannot be claimed. Unless there is good reason, you should only install new plant and equipment assets after you have move out of the rental property and it is available for lease. This will ensure you can claim maximum depreciation deductions. I bought my rental property fully renovated. Can I claim depreciation for the renovation? If a rental property is considered to have been substantially renovated by the previous owner for selling purposes, you can claim depreciation on the new plant and equipment assets along with any qualifying capital works deductions available. It must qualify as a substantial renovation, not just cosmetic. A Quantity Surveyor will estimate anything in the property that is part of a previous renovation and calculate the deductions accordingly. This includes items that may not be so obvious, such as new plumbing, waterproofing and updated electrical wiring. For capital improvements to qualify for the division 43 building write-off, construction must have commenced within specific qualifying dates. Doesn’t my accountant calculate depreciation for my rental property? No. Specialist quantity surveyors such as BMT Tax Depreciation are one of the few select professionals recognised by the ATO under Tax Ruling 97/25 as having the skills to estimate construction costs for depreciation purposes. BMT Tax Depreciation often works alongside your accountant to provide the tax depreciation schedule for your property. How can I claim depreciation on my rental property? The easiest and best way to claim depreciation on your rental property is to get a tax depreciation schedule prepared for the property. BMT Tax Depreciation specialise in maximising depreciation deductions for property investors, […]

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How to calculate depreciation for a rental property

BMT team — Tue, 13 Jul 2021 23:53:41 +0000

Claiming a tax deduction is usually straight forward – you simply record how much an item cost and then deduct it. But what about depreciation, which has no initial outlay and therefore no recorded cost? In this article, we will cover: What is depreciation and how it’s calculated How to calculate depreciation for capital works How to calculate depreciation for plant and equipment Why an expert is needed What is depreciation? Depreciation is the natural wear and tear of property and assets over time. While everything depreciates, only owners of income-producing properties can claim it as a tax deduction. It can be claimed on the eligible structure and fixed assets of a property (capital works), and easily removable and mechanical assets (plant and equipment). As one of the highest tax deductions available, depreciation can make a significant difference to an investor’s cash flow. How to calculate depreciation for a rental property Depreciation isn’t an upfront cost, in fact, it’s a ‘non-cash’ deduction as no money needs to be spent to claim it. Therefore, more thought needs to be put into claiming it correctly. The Australian Taxation Office (ATO) has set methods of calculating depreciation and the easiest way to understand how it all works is by breaking it down via its two categories. How to calculate depreciation for capital works Capital works deductions are generally deducted at a fixed rate of 2.5 per cent for a forty-year period. The following calculation demonstrates how it works. Capital works deductions in practice: Lisa purchased a new investment property in 2020. Her property’s capital works deductions were based off a value of $380,000 which encompassed the value of the property’s structure and fixed assets. Assuming no further capital works improvements are made, Lisa can claim $9,500 in yearly capital works deductions until 2060 (forty years) Full year capital works deduction: $380,000 x 2.5 ÷ 100 = $9,500 How to calculate depreciation for plant and equipment Plant and equipment depreciation deductions are calculated differently to capital works. Firstly, each plant and equipment asset has a designated depreciable effective life that is determined by the ATO. For example, a stove holds an effective life of twelve years, while a dishwasher holds an effective life of eight years. Secondly, there are two methods that can be used to calculate plant and equipment depreciation – prime cost, or the diminishing value method. Once a method is chosen for an asset it can’t be changed. Prime cost method The prime cost method, also known as the ‘straight line’ method of depreciation, calculates deductions using a uniform rate. This rate is based off the asset’s effective life. For example, an asset with an effective life of four years will hold a prime cost method rate of depreciation of 25 per cent (100 ÷ 4 = 25). The following shows a basic demonstration of how the prime cost method works in practice. Prime cost method in practice: Chris purchased a digital security camera for the exterior of his rental property. The camera’s depreciable value was $500 and it held an effective life of four years, resulting in a prime cost method depreciation rate of 25 per cent. The annual depreciation deductions would be calculated as follows. $500 x 25 ÷ 100 = $125 Using the prime cost method, Chris can claim an annual depreciation tax deduction of $125 per year for four years on the security camera. Diminishing value method The diminishing value method works very differently to prime cost. Each asset has a diminishing value depreciation rate based on its effective life, which is applied to the undeducted value of a plant and equipment asset, meaning higher deductions in earlier years. Let’s use the previous example to understand how the diminishing value method works. Diminishing value method in practice: Chris investigates the diminishing value method of depreciation for his security camera. Instead of 25 per cent as with the prime cost method, the diminishing value rate was 50 per cent (200 per cent ÷ 4 = 50). The yearly deductions would work as follows. Year one deduction: $500 x 50 ÷ 100 = $250 (remaining undeducted value = $250) Year two deduction: $250 x 50 ÷ 100 = $125 (remaining undeducted value $125) Year three deduction: $125 x 50 ÷ 100 = $62.50 (remaining undeducted value $62.50) Year four deduction: $62.50 x 50 ÷ 100 = $31.25 (remaining undeducted value $31.25) Year five deduction: $31.25 x 50 ÷ 100 = $15.60 (remaining undeducted value $15.60) Year six deduction: $15.60 x 50 ÷ 100 = $7.80 (remaining undeducted value $7.80) Year seven deduction: $7.80 x 50 ÷ 100 = $3.90 (remaining undeducted value $3.90) Year eight deduction: $3.90x 50 ÷ 100 = $1.95 (remaining undeducted value $1.95) Year nine deduction = $1.95 x 50 ÷ 100 = $0.97 Why is an expert needed to calculate depreciation? Understanding how depreciation is calculated is only scratching the surface and a tax depreciation schedule is imperative to claiming depreciation deductions effectively. There are many intricacies involved when preparing a tax depreciation schedule, including several legislative requirements to ensure that all claims are compliant. A specialist quantity surveyor is one of the few professionals recognised as having the skills and knowledge to accurately estimate construction costs for depreciation purposes. They will prepare a comprehensive tax depreciation schedule, for your accountant to determine deductions at tax lodgement time. To learn more about depreciation, visit BMT’s website or Request a Quote.

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I just bought an investment property… now what?

BMT team — Wed, 30 Jun 2021 01:56:55 +0000

So, you have just bought an investment property and ‘hot tips’ are coming from everywhere. Don’t get overwhelmed, start with the basics. Here are four fundamentals to help set you up for success. 1. Get the property rent-ready Getting a property ‘rent-ready’ means some repairs and maintenance may be needed to make sure the property is fit for tenants. This could include ensuring all smoke alarms meet government standards, checking for leaks in the property’s plumbing and reviewing the state of the property’s fittings and fixtures like floor coverings and guttering. Maintenance activities such as pest control, professional cleaning and yard maintenance may also be required. Look into your state or territory’s rental standards to ensure your property meets all legal requirements. You will be able to find those that are relevant to you on your state or territory’s government website. 2. Find a suitable property manager Your property manager is the go-to person that makes managing your investment property easy, so it goes without saying that finding a suitable one should be at the top of your priority list. Property managers do a lot of heavy lifting to ensure you find a reliable tenant that will treat your property like their own. Not only do they collect your rent, but they also manage inspections, tenant communication, maintenance or repair requests and help you through the process of any disputes that arise. Take the time to research local property managers. See what they specialise in and the extent of their experience. It’s always a good idea to meet your property manager in person and discuss your needs prior to signing any contacts. 3. Talk to your accountant An investment property provides a new income stream, and it’s important to manage this effectively. Your accountant will help you navigate this transition. They will help you budget, plan and manage your cash flow. They will explain your taxation reporting obligations. They will know the ins and outs of repairs versus maintenance and will also ensure you claim every tax deduction possible so your investment’s cash flow will reach its full potential, including depreciation. 4. Find out if depreciation is available Depreciation is the natural wear and tear of property and assets over time. As a property investor, you can claim this as a tax deduction. In further good news – it’s the second highest tax deduction after investment loan interest repayments and you don’t need to spend any money to claim it. Depreciation is claimed using two categories – capital works and plant and equipment. The first, capital works, is claimed on the building’s structure and fixed assets. This usually makes up 85 to 90 per cent of a depreciation claim. The second category of plant and equipment is claimed on the easily removable and mechanical assets. Don’t make the mistake of dismissing depreciation if you have purchased a second-hand property. While you can’t claim the second-hand plant assets, these properties can still hold thousands of depreciation deductions in the form of capital works and new plant assets. Find out just how much depreciation you can claim from your recently purchased investment property with an obligation-free depreciation estimate from BMT. The team do the work to ensure they achieve the highest deductions available from your investment. To learn more about depreciation, contact BMT on 1300 728 726 or Request a Quote.

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Discover the different ways to invest in property

BMT team — Sun, 30 May 2021 23:43:14 +0000

New ways to invest in property continually emerge. Nowadays, you can even invest in property with as little as $50. In this article, we will cover the following ways to invest in property: Fractional investing Real Estate Investment Trusts Purchasing and renting a property out Rentvesting Turning your home into an investment How to invest in property To invest in property you need a strategy, the finances and the knowledge of what you want to invest in – especially now that there are so many different property investment options available. Fractional investing Fractional investing is a relatively new way to invest in property that allows you to invest with as little as $50. Fractional investing involves purchasing a fractional ‘share’ of a physical property through a trading platform like BrickX or Bricklet. This share, also known as a ‘bricklet’, can be purchased for as little as $50. Example: A $500,000 property is broken into 25 bricklets, valued at $20,000 each. Each bricklet entitles the owner to 1/25th ownership of the property. Bricklets work in the same way as other tradable shares, in that they can be bought and sold on a trading platform. The way you earn a return or dividend is through the net rental income from the fraction of the property you own. Further returns can also be generated if the property’s value increases through capital growth when it comes to selling your share in it. Another method of fractional investing is through The DomaCom Fund. This is a regulated and ASX listed company which is a managed investment fund. It allows investors to select the properties they are wanting exposure to and via crowdfunding, the investors commit towards the eventual purchase of the property. When the crowdfunding campaign is complete, The DomaCom Fund purchases the property, places it in a sub-fund and issues the investors involved with ‘units’ in the property that are proportioned to the amount they invested. Each investors return is based on the percentage of the unit they own. The units are liquid, so investors involved can sell their units to other investors. Real Estate Investment Trusts (REITs) Investing in a REIT is another way to get exposure to the property market without buying a physical property. A REIT is like a managed fund, in that it is professionally managed and pools investors’ money together to invest in a diverse portfolio, often made up of commercial properties such as office towers, shopping centres and healthcare facilities. When you invest in a REIT you are issued securities, which act like shares. The securities are publicly traded on the Australian Stock Exchange and pay a regular income in the form of a distribution. Like shares, they also have the opportunity for capital gains and can be sold anytime. The minimum amount you need to invest in a REIT is generally $500. Purchasing a residential or commercial property to rent out to tenants This is the age-old way to invest – seek out a suitable property that has the core purpose of being an investment. Investment properties come in all shapes and sizes. On the residential side you have houses, units, townhouses, duplexes and studios. In the commercial space you have a range of different properties across commercial industries such as offices, warehouses, retail stores and hospitality venues. Rentvesting Rentvesting involves purchasing a property and leasing it to tenants, while you rent somewhere else – usually in a more desirable suburb. While it may seem counterintuitive, rentvesting is a good way to get a foot in the door of property investing. It allows you to purchase somewhere that you can afford, while living somewhere that suits your lifestyle. Turning your home into an investment There are several reasons why you might turn your home into an investment property. Maybe you’re relocating, downsizing or upsizing and wanting to hold onto your property until selling conditions improve. Or it may simply have been your plan all along. Whichever the case, turning your home into an investment is a genuine way to invest in property. An added bonus is that many of your previous home-ownership losses would now become tax deductible – like interest repayments, insurance, repairs, water charges and council rates. Claim everything you’re entitled to Successful investors maximise returns by claiming all permitted tax deductions. When purchasing an investment, make sure you get a depreciation estimate early. This could help you claim back thousands of dollars in just the first year of ownership. BMT Tax Depreciation provide obligation-free depreciation quotes across the country. Over the past twenty years, BMT has prepared more than 700,000 tax depreciation schedules, so you will have peace of mind knowing your depreciation needs are being looked after by the experts. To learn more about depreciation, contact BMT on 1300 728 726 or Request a Quote.

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Find out if a townhouse is a good investment

BMT team — Tue, 04 May 2021 23:14:16 +0000

Ever wondered if a townhouse is a good investment property? The answer comes down to your overarching investment strategy and whether a townhouse will fit into your portfolio. To help your decision-making process, we have weighed up the general pros and cons of investing in a townhouse. In this article, we will cover: The pros of a townhouse investment property The cons of a townhouse investment property Townhouse depreciation Pros Low maintenance The maintenance levels of a townhouse is a balance between the levels required for a house and a unit. Townhouse yards are often simple courtyards, smaller than those of detached houses. They provide a style of low-maintenance living for your potential tenants, which adds convenience to your rental listing. Tenant market appeal Townhouses provide low maintenance, modern designs, adequate size and proximity to amenities. All these factors attract quality tenants, which means townhouses hold high tenant market appeal. However, it’s still important to research the local market before investing in a townhouse. Even if it technically ticks all tenant-demand boxes, market supply and rental rates need to be considered. Affordability The price of a townhouse can be more suitable for your budget compared to a house in the same area. If you compared a townhouse and detached house in the same area, that of the same size and age, you will find the townhouse sits in a more affordable price-range. Common property depreciation Depreciation can be claimed on a property and its assets. Townhouse investors can claim this on their townhouse’s structure, fixed assets and other assets they own in the property such as kitchen appliances. But they also have the added benefit of claiming depreciation on eligible common property items. This can include things like garbage bins, security cameras and the driveway that links the townhouses. Cons You’re part of a strata scheme Being part of a strata scheme can limit what and how you can do updates to the property. For example, if you’re wanting to make an improvement to the property you need to go through the strata approval process. This is more of an issue if you’re wanting to make the property your own home. But when you are just making improvements to the property to fix repairs while it’s an investment you will find that there are less road blocks in the strata approval processes. Lower rental potential When compared to freestanding homes, townhouses often have lower rental returns. However, this lower rental potential can be offset by other things like lower maintenance costs and a lower purchase price. It’s important to consider all these factors in your purchase and how they will impact your cash position. Resale values Historically, townhouses experience lower levels of capital growth compared to houses in the same area. Capital growth is one of the most important ways investors make money from their investment properties. Property market waves constantly change what the capital growth outlook is, so it will be important to keep an eye on this during your townhouse ownership cycle. Townhouse depreciation We mentioned common property depreciation earlier, but it’s important to understand just how much depreciation you can claim from a townhouse. The following case study demonstrates the depreciation deductions you can expect from a new townhouse investment. Townhouse depreciation case study Pete purchased a brand-new townhouse as an investment property in 2021. The property was located in Sydney and had a floor area of 200 square metres. Following the purchase, Pete organised a tax depreciation schedule. From this, he found out he could claim a first-year depreciation deduction of $15,400 and a cumulative five-year deduction of $65,100. To learn more about depreciation and how it can make investing in a townhouse more affordable, contact BMT on 1300 728 726 or Request a Quote.

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10 tips on how to buy more investment properties

BMT team — Tue, 02 Feb 2021 22:11:56 +0000

Property is a stable, long-term investment that can boost your cash flow significantly. Some of the most successful property investors hold multiple properties in their portfolios, generating several cash flow streams and amplifying capital growth. With over twenty years of experience in the property industry, here are ten tips we see being used to help grow a portfolio. 1. Assess your investment strategy and current portfolio First and foremost, any investment property you buy needs to complement your investment strategy. Look at how it will impact your ongoing cash flow, your future equity and how it fits into your longer-term goals. For example, if your strategy is to achieve a diversified portfolio, then purchasing multiple properties in the same area isn’t aligned with this strategy. If the above example is similar to one of your goals, it’s important to remember that some areas give stable rental returns, with high rental yields. While other areas offer lower yields but a higher likelihood of capital growth based on supply and demand. Holding a mixture of properties in these different areas is just one way of diversifying your portfolio. 2. Leverage existing equity Equity is gained through either capital growth or by paying down the principal of the existing loan. You can leverage the existing equity in your current investment property to buy a new one. The amount of equity you have is the property’s value minus how much you owe. The easiest way to understand how to leverage existing equity is through this simple example: Dan purchased an investment property for $450,000 in 2015 with a 20% deposit ($90,000) and a $360,000 mortgage. This means the property’s current equity is $90,000. Over five years, Dan pays a further $90,000 off the home loan’s principal, which means he now has $270,000 owing, plus the property’s value increase to $500,000. Dan’s equity in this property is now $230,000 ($500,000 minus $270,000). Dan can use this equity to refinance and place a deposit on a second property. It’s important to note that financial institutions usually like owners to maintain a loan value ratio (LVR) of at least 80 per cent. So in the above example, a portion of the equity can be used if a LVR of 80 per cent is maintained. Using a property’s existing equity can have some financial implications, such as Lender Mortgage Insurance being required on a refinanced loan. Therefore, it’s always recommended to seek professional advice before doing so. 3. Save, and save more You can’t rely solely on your equity to build your property portfolio. It’s important to have savings ready. One way to do this is to use the excess cash flow produced by your first investment property wisely and towards savings for another deposit. Another option is investing in safe, short-term investments that will help you grow your savings. When considering how to use your savings, it’s important to consult with a trusted financial professional who can help you reach your financial goals. 4. Assess the current property market and cycle You can’t predict the future. While the property market has proven resilient in recent times, the unexpected can always happen. Keeping up-to-date with the market and property trends is important when making your next investment move. This includes not falling into the trap of being sucked into media hysteria following a bad week in the market. Ensure you’re informed by reputable sources such as CoreLogic, SQM research and government sources such as the Australian Bureau of Statistics. MyBMT is also a free, helpful tool that has a property research and insights feature. 5. Don’t let your current property plateau Don’t ignore your current investment property as you look to grow your portfolio. This property can still be a powerhouse when it comes to boosting your returns and building your equity over time. Get your property revalued on a regular basis and add value through a solid maintenance plan and if required, renovations. Smart renovations can help you gain equity quickly, while if the property goes up in value it can mean you have access to more equity for investing. 6. Shop around for the right loan With interest rates at record lows, it’s important to shop around for the best loan that suits your investment strategy. Don’t just look for the best interest rate. Each loan is different, with varying terms and conditions, so its key to do the research. Speak to your lenders and consider going through a reputable mortgage broker. A good mortgage broker can help you get the best deal and save you money in the long run. 7. Don’t rule out cheaper properties Keeping updated with the property market means you can find hidden gems in areas with strong rental returns but lower property prices. Buying properties in these areas mean you could potentially buy two for the price of one in a more expensive area. Another option could be selling your first investment property if it’s experienced strong growth and buy two cheaper properties with the funds. When doing so, it’s important to consider the rental yield versus capital growth scenario, as cheaper properties sometimes experience slower capital growth. But this all comes back to your investment strategy as in the earlier years your strategy may be focussed on growth, while rental yield might become more important to fund the retirement stage of your life. 8. Consult with your property investment team Given that you’re looking to buy more investment properties, it’s fair to assume you already have at least one that’s a success. A professional property investment team is key to a successful investment property, and consulting with them can provide you with both guidance and a solid plan of attack. Your team could include your accountant, financial planner, property manager, real estate agent and specialist quantity surveyor. 9. Consider joint ventures Pairing up with someone with similar investment goals as you can be a more affordable option to add to your portfolio. Not only does it mean your upfront costs are less, the ongoing costs of […]

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How does investment property depreciation work?

BMT team — Mon, 18 May 2020 00:23:17 +0000

Investment property depreciation can save investors thousands of dollars every year. However, many don’t realise the benefits of it. This often results in many failing to claim depreciation and missing out on maximising their cash flow. In this article we will answer: What is property depreciation? How does investment property depreciation work? Does property depreciation work differently for older investment properties? How does the 2017 depreciation legislation changes impact property depreciation? What’s involved in completing a tax depreciation schedule? What is property depreciation? As a property gets older, its structure and the assets 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. Depreciation can be claimed under two categories – capital works and plant and equipment. Capital works deductions refer to the wear and tear that occurs to the structure of the property and any fixed items like the roof, walls and driveway. Plant and equipment deductions refer to the same wear and tear of easily removable fixtures and fittings including carpet, hot water systems and air-conditioners. Depreciation is classed as a non-cash deduction, meaning that investors don’t need to spend any money in order to claim it. How does investment property depreciation work? A specialist quantity surveyor can prepare a tax depreciation schedule for any type of investment property. This schedule includes all capital works and plant and equipment depreciation deductions an investment property holds over its lifetime. The investor’s accountant will use this tax depreciation schedule to determine their depreciation deductions each financial year. These deductions reduce the investors taxable income, meaning they pay less tax. Does property depreciation work differently for older investment properties? The essentials of property depreciation applies for all types of investment properties. However, owners of older investment properties need to be aware of their eligibility for capital works allowance deductions. When a property is constructed before 15 September 1987, capital works deductions aren’t available on the property’s original structure and fixed assets. Lucrative depreciation deductions are still often found on these properties as they have usually undergone some type of renovation that supplies eligible capital works deduction. How does the 2017 depreciation legislation changes impact property depreciation? Depreciation legislation changes made in 2017 mean that owners of second-hand residential properties (where contracts exchanged after 7.30pm on 9 May 2017) can’t claim depreciation on existing plant and equipment assets. Owners of affected properties can still claim depreciation deductions on the new plant and equipment assets they purchase for the property directly and any capital works deductions. On average, capital works deductions make up 85 to 90 per cent of total depreciation claims. What’s involved in completing a tax depreciation schedule? BMT Tax Depreciation makes the process of completing a tax depreciation schedule easy. After receiving some of the property’s basic information, our expert term will provide a free initial estimate of what to expect in the first financial year. From here, a specialist BMT site inspector will carry out a site inspection of the investment property. The is a vital step as it allows BMT to find every depreciable asset available and ensure ATO compliance. Following the site inspection, BMT will complete a tax depreciation schedule to provide to the investor and their accountant. The tax depreciation schedule only needs to be completed once as it lasts the lifetime of the property, and can be updated when additions are made to the property BMT found clients an average of almost $9,000 in first full financial year deductions last financial year. To learn more about depreciation, Request a Quote or contact BMT on 1300 728 726.

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Why savvy investors love these 5 properties from The Block

BMT team — Thu, 07 Nov 2019 00:32:58 +0000

Each year The Block contestants battle against time to complete lavish renovations before auction day. While time management, styling and functionality all play a part in determining who wins the TV series, there’s another hidden feature that attracts savvy investors to the high-end properties. It’s called depreciation. The Australian Taxation Office allows owners of income producing properties to claim depreciation deductions for the wear and tear that occurs as a building gets older and items within it wear out. Each property is unique and holds different depreciable value, sometimes in the millions. BMT Tax Depreciation has worked with The Block to provide depreciation assessments for more than ten years. Now, we’re revealing the top properties with the highest depreciation deductions available from the past five seasons. 1. Jesse and Mel – 2019 Jesse and Mel’s property on this year’s season of The Block holds nearly $3.68 million in tax deductions for the future buyer should they decide to rent the property out. In the first year of ownership, an investor could claim more than $138,000 worth of depreciation deductions. This attribute could increase the price that property investors are willing to pay for the property and give the pair an edge during the final auction. While Jesse and Mel’s property holds the most total deductions, Mitch and Mark ($3.65 million) and Andy and Deb ($3.63 million) are hot on their heels. 2. Kerrie and Spence – 2018 Barossa couple Kerrie and Spence were first up on auction day last year and started the night with a spectacular result. The couple’s 2018 apartment sold for $2.85 million, $415,000 over reserve. The property was also shown to hold over $3 million in tax deductions for future investors, with $135,132 in depreciation deductions in the first year alone. Outstandingly, Kerrie and Spence’s property had $100,000 more in deductions than their closest rival. 3. Hannah and Clint – 2017 You may be more familiar with fan favourites Elyse and Josh, who famously won the season when they sold their property to comedian Dave Hughes, but contestants Hannah and Clint stole the attention of investors. Hannah and Clint’s property had a first-year deduction estimated to be $82,304 and a total average deduction of $2,175,149. The Townsville couple took home $95,000 after their house sold for $2.61 million. 4. Kim and Chris – 2016 While Will and Karlie took out the 2016 season, pocketing a whopping $815,000, it was Kim and Chris who built the best investment property. Kim and Chris’s penthouse apartment had the highest amount of depreciation deductions available, with a first year deduction estimated to be at $87,470 and a total deduction estimated to be at $2,448,042. Overall, BMT analysis found that investors could claim an average of over $2.2 million in depreciation deductions for each apartment on the 2016 season. 5. Dean and Shay – 2015 Who could forget Dean and Shay’s incredible penthouse apartment? Taking out the top spot on The Blocktagon season, the Newcastle couple’s penthouse sold for $2.3 million, $655,000 above its reserve price. Their luxury apartment also had significant depreciation deductions on offer for investors. BMT Tax Depreciation estimated Dean and Shay’s penthouse apartment to have a minimum of $62,735 in first year depreciation deductions and $1,621,688 over the specified lifetime of the property. Out of all apartments on the 2015 series, this was the highest amount of depreciation deductions available to investors. Do you love watching The Block? You might enjoy reading: Are home renovations tax deductible? What’s the difference between a cosmetic and substantial renovation? Lucrative assets to install when renovating

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