» Plant and equipment

What exactly is the low-value pool?

BMT team — Tue, 23 Oct 2018 03:14:39 +0000

If you’re claiming depreciation for plant and equipment assets contained within your investment property, you should know about the low-value pool. Low-value pooling is a way to reap the benefits of claiming depreciation sooner. Just as its name suggests, low-value pooling involves grouping depreciable assets in an accelerated depreciation pool. Plant and equipment depreciation can normally be claimed at a pre-determined rate as set by the Australian Taxation Office (ATO). These rates vary between assets, for example, using the diminishing value method, a residential oven depreciates at a rate of 16.67 per cent while solar hot water systems depreciate at a rate of 13.33 per cent. By placing qualifying assets into the low-value pool, investors can take advantage of a faster rate of depreciation. Assets contained within the pool can be claimed at a rate of 18.75 per cent in the year of purchase regardless of the length of time that the property has been owned and rented. After the first year, the remaining balance of the item can be claimed at a rate of 37.5 per cent per year. The ATO outlines a clear difference between low-cost assets and low-value assets. Low-cost assets are those depreciable assets that have an opening value of less than $1,000 in the year of acquisition. Low-value assets are those which have depreciated over one or more years and now have a written down value of less than $1,000. This means the asset’s value was more than $1,000 in the year of acquisition but the residual value of depreciation is now less than $1,000. An example of this is residential carpet purchased in January 2017. At the time of purchase, the opening value of the carpet was $1,100 but using the diminishing value rate, by July 2017, the carpet’s residual value was $990. After six months of depreciation, the carpet has a written down value of less than $1,000 and is classified as a low-value asset. The ATO states that once you choose to allocate a low-cost asset to a low-value pool, you must then add all other low-cost assets you acquire within that income year and future income years to the low-value pool. However, with low-value assets, you can decide whether or not you wish to add individual low-value assets to the pool. It is important to note that once an asset has been allocated to the pool, it has to remain there. To learn more about how you can benefit from depreciation sooner using the low-value pool, head to bmtqs.com.au or contact the expert team at BMT Tax Depreciation on 1300 728 726.

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What are plant and equipment deductions?

BMT team — Wed, 05 Sep 2018 05:14:18 +0000

In a recent article, we explored capital works deductions. The other category that makes up depreciation is plant and equipment, or division 40. Plant and equipment depreciation refers to the deductions an investor can claim for the wear and tear that occurs to the fixtures and fittings located within a property. They are assets which are considered by the Australian Taxation Office (ATO) to be easily removed from the property. Investors can claim depreciation deductions for more than 6,000 different ATO recognised assets. Some examples include the carpets, blinds, air conditioners, hot water systems, smoke alarms and ceiling fans. Each of the assets is assigned an individual effective life and depreciation rate by which depreciation should be calculated. The depreciation rates and effective lives of all ATO specified plant and equipment assets differ by asset and even by industry. The ATO recognises that plant and equipment items will wear out more quickly than the building itself and likely need replacing sooner. Changes to depreciation rules in 2017 On Wednesday the 15th of November 2017, Parliament passed the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017, which brought about some major changes to plant and equipment depreciation claims. The changes mean that owners of second-hand residential properties (where contracts exchanged after 7:30pm on the 9th of May 2017) are no longer eligible to claim depreciation on existing plant and equipment assets located within their property. However, owners of affected properties can still claim depreciation on the plant and equipment assets they purchase for their property directly. It is important to note that there are still thousands of dollars to be claimed by Australian property investors, as there has been no change to capital works deductions, which typically make up between 85 to 90 per cent of an investor’s total claimable amount. Previously existing depreciation legislation has been grandfathered, meaning investors who already made a purchase prior to this date can continue to claim depreciation deductions as per before. To read more about the new depreciation legislation and how this applies to a range of property investment scenarios, download our comprehensive white paper document Essential facts: 2017 Budget changes and property depreciation. It’s more important than ever to work with a specialist Quantity Surveyor to ensure that all deductions are identified and claimed correctly under the new legislation. Each and every BMT Tax Depreciation Schedule will be tailored to suit an individual’s property investment scenario, ensuring that all deductions are maximised. For further information on any property investment scenario, speak with one of the expert staff at BMT Tax Depreciation on 1300 728 726. .

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Draft legislation: understanding the proposed changes

BMT team — Thu, 27 Jul 2017 00:37:25 +0000

This month, the government released draft legislation regarding the proposed changes to plant and equipment depreciation as announced in the May federal budget. The draft outlined further details around a property investor’s eligibility to claim depreciation and provided a range of scenarios to be aware of should this legislation pass. In a positive move, the government provided the public with an opportunity to have their say on the new measures. A public consultation period, which was open until the 10th of August 2017, has now closed. While these measures are yet to be legislated, we have taken a proactive approach in reviewing how these intended changes could impact investors. Following is an in-depth look at the possible outcomes. Limiting depreciation on second-hand assets Section two of Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 advises that the Bill intends to amend the Income Tax Assessment Act 1997 (ITAA 1997) to limit deductions for plant and equipment in residential premises. In essence, the proposed new law reduces the amount an investor can deduct for a previously used depreciating asset for the purpose of gaining or producing assessable income. Should the proposed legislation be passed, this means that residential property investors won’t be able to claim depreciation for plant and equipment assets found in second-hand properties in which contracts exchanged after 7:30pm on the 9th of May 2017. Investors can learn more about the proposed changes, who is affected and what they mean by visiting our blog post, ‘What do the proposed changes to depreciation mean for you?’ Capital gains tax changes and implications The draft legislation outlines some detail around a reduced Capital Gains Tax (CGT) liability for property investors. Any property investor who is unable to claim depreciation on previously used plant and equipment due to these amendments will be able to claim a capital loss for the decline in value of the plant and equipment assets. This capital loss will only be able to offset a capital gain and if needed can be carried forward to offset future capital gains. A value that relates to the previously used depreciation assets will need to be established at the time of purchase. A decline in value will then need to be calculated for the assets so that a termination value can be determined at the time the property is sold. The difference between the value at the time of purchase and the termination value will be the capital loss which will reduce the owner’s CGT liability. How will the changes affect an investor’s cash return? The following scenario compares the cash return an investor will receive for a three year old house purchased for $600,000 both before and after the proposed new measures. In the example, the owner receives a rental income of $560 per week or a total income of $29,120. Expenses for the property, such as interest, council rates, property management fees, insurance and repairs and maintenance total $41,028. In scenario one, the owner is able to claim a total depreciation claim of $12,397 for both capital works deductions and plant and equipment depreciation. Using depreciation, this investor will experience a weekly cost of $56 per week to hold the property. In the second scenario, as the owner exchanged contracts on the property after 7:30pm on the 9th of May 2017, they are only able to claim $6,126 in capital works deductions and will be unable to claim $6,271 in plant and equipment deductions. This reduced claim would result in the investors weekly cost of holding the investment property increasing from $56 to $101, a difference of $45 per week or $2,340 in the first full financial year. As you can see, the proposed changes will limit the depreciation deductions available to property investors, which will lead to a cash flow reduction each year. BMT believes that while generally the integrity measure has merit, the proposed changes go much further than what is necessary to deliver on the Government’s intention of stopping subsequent owners from claiming deductions in excess of an assets value. The approach proposed in the draft legislation treats residential property investors differently by extinguishing a property investor’s ability to claim a deductions based upon a transaction. We believe this is caused by gaps in current legislation around establishing a depreciable value for second-hand plant and equipment. Property investors who would like more information can speak with one of our expert staff by contacting their local office.

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Investors can now have their say on proposed depreciation changes

BMT team — Wed, 19 Jul 2017 02:27:53 +0000

In breaking news, the Australian Government has released draft legislation for public consultation that provides property investors with the opportunity to have their say around proposed changes to depreciation deductions that were announced in this year’s Federal Budget. According to Bradley Beer, the Chief Executive Officer of BMT Tax Depreciation, the integrity measures in the exposure draft released by the government provide further clarification for property investors around the proposed new rules and investors would be wise to closely review the documents and/or speak to a qualified expert before purchasing an investment property. In the exposure draft, Treasury Laws Amendment (Housing Tax Integrity) Bill 2017: Limiting deductions for plant and equipment in residential premises and travel expenditure for residential rental property, many questions which were left unanswered by investors have now been addressed. The Bill suggests that investors who purchase new properties and complete substantial renovations or purchase a property off the plan, will not be affected by the changes. However, and as foreshadowed, investors who have purchased second hand residential properties after the 9th May 2017 will only be able to claim depreciation for plant and equipment assets that they spend money on themselves. In the past, this group has been able to depreciate such assets in properties they purchased regardless of whether they paid for them or not. “While the Government’s intention has merit, BMT believes that this change may unfairly prejudice investors of second hand properties,” said Mr Beer. “BMT encourages people in this group to review the legislation and have their say through the appropriate channel,” said Mr Beer. The Government also advises that amendments to deductions for plant and equipment assets held in residential properties will not affect those carrying on a business, corporate tax entities and those who hold a property in a large unit trust. “This means that those who operate a business from home will still be able to continue claiming plant and equipment depreciation on assets which are used to produce an income for the business,” said Mr Beer. “Owners of second hand residential properties will still be able to claim a capital works deduction for the structural element of a building including fixed assets, if the building was constructed after 1987.” “This capital works deduction makes up the largest part of a property investor’s depreciation claim,” said Mr Beer. All investors who exchanged properties before 7:30pm on the 9th of May this year will still be able to claim depreciation as normal. Public consultation regarding the new measures for plant and equipment depreciation, and changes to claims for travel expenditure, is open until the 10th of August 2017 for property investors who would like to have their say.

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