» Property Depreciation

9 tax depreciation facts every investor needs to know

BMT team — Thu, 14 Apr 2022 00:28:49 +0000

BMT Tax Depreciation has prepared over 700,000 schedules and found clients an average of $9,000 in the first full financial year deductions. However, BMT’s research shows that up to 80 per cent of property investors still fail to take full advantage of claiming tax depreciation. When it comes to managing a property portfolio and claiming all the right deductions there is an overwhelming amount of information. So, we thought we’d break down 9 tax depreciation facts. Fact 1. Tax depreciation is the highest non-cash deduction Fact 2. Two types of property depreciation deductions Fact 3. Legislation changes don’t affect capital works claims Fact 4. Legislation changes don’t affect substantially renovated property Fact 5. The immediate deduction boosts cash flow Fact 6. New and old properties hold depreciation Fact 7. Low-value pooling accelerates depreciation Fact 8. Hidden deductions are found in common property Fact 9. Site inspections are a key to step to maximising compliant claims Fact 1. Tax depreciation is the highest non-cash deduction Tax depreciation is a non-cash deduction, meaning investors don’t need to spend any money in order to claim it. Overall, property depreciation is the second-highest deduction available for property investors. Tax depreciation comes second only to costly mortgage interest repayments. Fact 2. Two types of property depreciation deductions There are two types of depreciation deductions available to claim. The first type is capital works (Division 43). This is the building’s structure and the assets that are permanently fixed to the property. These assets can include garages, fences, and built-in kitchen cupboards. On average, capital works deductions make up 85 to 90 per cent of the total depreciation claim. The second type of depreciation is plant and equipment (Division 40). These assets are easily removable from the property or are mechanical in nature. This can include blinds and curtains, light fittings and security systems. While these typically are less than capital works, they still hold significant deductions. Due to legislative changes, there have been adjustments to how plant and equipment deductions can be claimed on second-hand properties, further explained below. Fact 3. Legislation changes don’t affect capital works claims In 2017 the Australian Government made changes to depreciation legislation. The changes meant that owners of second-hand properties purchased after 9 May 2017 could no longer claim depreciation on previously used plant and equipment assets. Investors could still claim plant and equipment deductions on new assets purchased for the property. It’s important to note the legislation changes don’t impact eligibility to claim depreciation deductions for qualifying capital works. Fact 4. Legislation changes don’t affect substantially renovated property A property is considered substantially renovated when all, or substantially all of a building is removed or replaced. Some key examples of substantial renovations include replacing foundations of the building, walls, floors, roof or staircases. If an investor purchases a second-hand property directly after its substantial renovation, the 2017 legislation changes do not apply. This means the new owner is eligible to claim on all new plant and equipment assets and the capital works. Fact 5. The immediate deduction boosts cash flow Investors can further boost their cash flow by claiming the immediate deduction on eligible assets valued up to $300. This immediate deduction can be claimed in the year of purchase and there’s no limit to the amount of assets that can be claimed. This means that if they are eligible, the investor can potentially boost their cash flow by hundreds if not thousands of dollars. Fact 6. New and old properties hold depreciation There is a common misconception that older properties cannot hold depreciation deductions, which is false. Deductions can be found in most properties, from brand new properties to properties built over twenty years ago. Unfortunately, many investors rule out claiming depreciation as they believe their property is too old. An obligation-free tax depreciation estimate from BMT can provide the answer. BMT also guarantees to find double their fee in deductions in the first full financial year or they won’t charge for their services. Fact 7. Low-value pooling accelerates depreciation Low-value assets that aren’t eligible for the immediate deduction are often placed in the low-value pool. Low-value pooling allows owners to claim depreciation at an accelerated rate. When a plant and equipment item is allocated to the low-value pool, it can be depreciated at a rate of 18.75 per cent in the first year and 37.5 per cent each following year. An item can only be included in the low-value pool if it is a low-cost or low-value asset. Low-cost asset: opening value of $1,000 or more. Low-value asset: a written down value of $1,000 or more. When an asset’s opening value was more than $1,000 but the residual value is now less than $1,000. Fact 8. Hidden deductions are found in common property When an investor purchases a property such as an apartment or townhouse in a complex, it will often be under a strata title. Owners of these properties can claim an apportioned deduction of the common property assets under the strata. These may include elevators, intercom systems and ventilation fans. BMT’s specialist site inspectors determine the value of these assets for depreciation purposes by defining the owner’s interest in the asset. Due to depreciation only being available for a portion of the asset, it may fall into the low-value pool or will qualify for an immediate deduction. Fact 9. Site inspections are a key to step to maximising compliant claims Both the National Tax and Accountants’ Association (NTAA) and the Australian Institute of Quantity Surveyors (AIQS) recognise that physical site inspections are essential for claiming maximum deductions compliantly. Failing to conduct site inspections often results in missed deductions or errors made on the tax depreciation schedule. BMT’s specialist site inspectors conduct physical site inspections, ensuring an accurate tax depreciation schedule is completed that maximises deductions and is ATO compliant. For over twenty years, BMT Tax Depreciation has been the most trusted specialist in the industry nationwide. To learn more about how you can start […]

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Top 6 investment property renovation tips

BMT team — Sun, 06 Feb 2022 21:56:27 +0000

The warmer months are upon us which has some of us thinking about giving our investment properties a facelift. Whether it’s a fresh paint job, flooring or a new bathroom, renovating your investment property can result in higher returns for years to come. Not only does a freshly renovated property attract quality tenants, it also puts more back in your pocket with ample depreciation deductions at your disposal. The essential step to any investment property renovation is taking a head over heart approach. Here are our top 6 investment property renovation tips to maximise your returns. Tip 1: Know your market and budget Tip 2: Be aware of 2017 legislation changes Tip 3: Understand the effective lives of assets Tip 4: Learn about depreciation incentives prior to renovating Tip 5: Take advantage of the longevity of capital works deductions Tip 6: Don’t forget about scrapping deductions Tip 1: Know your market and budget The golden rule to any investment property renovation is to know your market, know your budget. It’s important to remember here that you’re renovating the property directly for returns and tenant appeal, not your personal preference. It goes without saying, but you don’t want to spend outside your budget as this can have detrimental impacts to your cash flow. At the same time, you want to ensure the property renovation is suited to your market. For example, if your target market is professional singles or couples, you may not want to reduce the size of living areas for an extra bedroom. Meanwhile, removing a bath tub won’t be the right choice if your market is families with children. Tip 2: Be aware of 2017 legislation changes When it comes to claiming the most depreciation possible following an investment property renovation, 2017 legislation changes are important to be aware of. Under the changes, ‘previously-used’ plant and equipment assets can’t be depreciated. Plant and equipment assets are mechanical or easily removable in nature. Some key examples include floor coverings, hot waters systems, air conditioning units and light fixtures and fittings. The key factor to be aware of when it comes to linking the legislation changes with your renovation is the ‘previously-used’ provision. This means that any second-hand plant and equipment assets you install during the renovation can’t be depreciated. It may seem easier to stay at the property while the renovation is taking place so you’re close to the action but doing so can have harmful impacts to your future depreciation deductions. The previously-used provisions also apply to brand-new assets you installed during the renovation if you lived in the property at the same time, even for a short period. For this reason, it’s always recommended to never stay at your investment property during a renovation. Tip 3: Understand the effective lives of assets Every type of plant and equipment asset has its own effective life. This determines how much in depreciation deductions you can claim in each year. A key example of how important the effective lives of assets can be when renovating is in flooring. As one of the most renovated assets, depreciation deductions can vary greatly depending on flooring type. Carpet has an effective life of eight years, while floating timber flooring has an effective life of fifteen years. This means you will be able to claim more from carpet in earlier years as it depreciates sooner, while floating timber would result in a steadier flow of deductions over the long-term. Meanwhile, tiles are considered to be part of the building and therefore claimed over forty years at a low rate of 2.5 per cent. For example, $2,000 worth of carpet would be a first full year claim of $500. The same amount of floating timber would be a first full year claim of $266 and tiles would be $50. Tip 4: Learn about depreciation incentives prior to renovating There are several depreciation incentives available that can boost your cash further and sooner following a renovation. Being aware of these can help you choose assets that will compliment your returns. The first is the immediate deduction. This incentive allows you to immediately deduct any new, eligible plant and equipment asset that costs $300 or less. There is no limit to the number of assets that can be deducted, as long as they meet the given eligibility requirements. We have seen this humble deduction boost cash flow by thousands in just one year. The second incentive is the low-value pool. Plant and equipment assets that cost or are valued at $1,000 or less can be placed in the pool. Once an eligible asset is placed in the low-value pool, depreciation deductions are fast-tracked. In the year of purchase, depreciation is calculated at an increased rate of 18.75 per cent. During following years, the rate is heightened further to 37.5 per cent. Tip 5: Take advantage of the longevity of capital works deductions We have provided several tips on making the most out of plant and equipment assets following a renovation, but it’s just as important to exploit capital works following a renovation. Capital works is the structural component of the investment property. If you build a wall, tile the bathroom or install new kitchen benchtops you are doing a capital improvement. These can be deducted with capital works deductions for a forty-year period. On average, we find capital works make up 85 to 90 per cent of total depreciation claims! So its important to ensure you factor in any capital improvement you may be weighing up during your renovation. Tip 6: Don’t forget about scrapping deductions The new assets aren’t the only ones you can benefit from following your investment property renovation. The qualifying assets you removed in the process can also boost your cash flow. A process called scrapping allows you to claim the un-deducted depreciable amount from removed assets. ‘Scrapped’ deductions can be claimed on plant and equipment, in addition to structural assets . While it seems straight forward, we […]

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Property Market Update 2022

BMT team — Fri, 28 Jan 2022 02:16:37 +0000

The pandemic pushed Australians to their limits in 2021, but we remained staunch – as did the housing and property market. Read on for a recap of events in last year’s property market and watch the video to hear the thoughts of our CEO, Bradley Beer. Contents: National property market prices Rental yields Finance and interest rates National property market prices The property market in Australia finished the year with strength. At the end of December 2021, Australian dwelling values were 22.1% higher than in December 2020, coming off a cyclical high of 22.2% in the twelve months to November. Australia’s inflated property market is now valued at more than $9 trillion, a record high after surging home prices through the pandemic lifted the value of residential property by $1 trillion in the past six months alone. Rental yields With national property values recording an annual rise of 22.1% compared with a 9.4% rise in rents, rental yields have decreased as a natural consequence. Gross rental yields fell to a new record low across Australia, reaching 3.2% in December. The lowest yields, by some margin, remain in Sydney (2.4%) and Melbourne (2.7%), however, except for Perth and Darwin, every capital city is recording record low yields. Finance and interest rates Following its December meeting, the RBA kept the Official Cash Rate at the record-low of 0.1 per cent. Concerns about property affordability have risen to the highest-ever level in the latest ANZ/Property Council Survey, with respondents saying soaring prices and increasingly unequal access to home ownership make it the number one issue for governments to address. The powerful Reserve Bank-led Council of Financial Regulators has maintained its watching brief over the hottest property market in over three decades, saying it continues to “closely monitor” the impact of the higher interest rate buffers imposed in November. Hear more from our CEO, Bradley Beer.

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Foreign investment in Australian property: how it works and how to reap the benefits

BMT team — Sun, 14 Mar 2021 22:29:37 +0000

Foreign investment is an important part of the Australian economy and helps it reach its full economic potential. For example, foreign investment in Australian increases tax revenues of the federal and state governments that can be used to fund parts of the community like hospitals, school and other essential services. Beyond the economic factors, foreign investment enriches the Australian climate with diversification, increased competition and performance. If you’re a foreign resident to Australia, and thinking about investing in residential property here, this is what you need to know and how you can claim tax deductions like depreciation. In this article, we will cover: What is foreign property investment Rules and regulations Foreign investment and depreciation What is it and how does it work? If you’re a foreign person to Australia (including temporary resident or foreign non-resident), you can directly invest in Australian property. However, there are several rules and regulations that apply to you and the type of property you can invest in. Here is a short overview of some of the key rules that apply. FIRB consultation Before deciding whether to invest in Australian property, it’s important to read through the Foreign Investment Review Board (FIRB) guidance notes. These outline what is required, processes, what you can and cannot invest in and any additional fees you may be subjected to. Property type The types of Australian properties that you can invest in include: New dwellings Established dwellings to live in (i.e. as a main residence, not investment) Properties for redevelopment Off-the-plan properties Vacant residential land This means you will generally be prohibited from purchasing established property, like a second-hand house, as an investment. But you can apply for what is called an ‘exemption certificate’. If you’re successful in your application, the exemption certificate will allow you to purchase one unspecified residential property (i.e. one excluded from the list above) in a particular state/territory without having to apply for approval. Taxation requirements Once you own an Australian property, you will be subjected to Australian taxation requirements. This means you will need to get a tax file number and report all rental income and expenses by lodging an Australian tax return. Through this tax lodgement process, you may be required to pay a vacancy fee. This fee was introduced in 2017 and is an annual fee that must be paid if the property isn’t residentially occupied or leased for more than six months (183 days) in a year. As a foreign investor, can you claim tax deductions and depreciation? Claiming tax deductions comes hand-in-hand with reporting taxable income in Australia. This means you can claim deductions when lodging their Australian tax return. Just some of the deductions you can claim are expenses for are interest repayments, insurances, property management fees and much more. A tax depreciation schedule prepared by a specialist quantity surveyor will also allow you to claim depreciation on the property. Depreciation is the natural wear and tear of the property and its assets over time. You don’t need to spend any money to claim depreciation and it has the potential to boost cash returns by thousands. Case study – claiming depreciation in practice Nina is a permanent resident of Beijing, China. She purchased two Australian investment properties at the start of the 2020-21 FY. The table below provides information on each of her new residential investment properties and the first-year depreciation deductions she could claim from each. When combined, Nina’s annual taxable income from the properties is $67,600 and total first-year depreciation deductions come to $32,622. The table below demonstrates how depreciation alone affects the amount of tax she needs to pay. By claiming depreciation alone, Nina has a tax liability of $10,602 when lodging her Australian tax return. Without depreciation, she would’ve been faced with a tax liability of $21,970 (assuming a 32.5 per cent tax rate) – therefore making an annual saving of $11,368, or approximately $219 per week. BMT Tax Depreciation specialise in comprehensive tax depreciation schedules for both Australian and non-Australian residents. To learn more about claiming depreciation, contact BMT Tax Depreciation on 1300 728 726 or Request a Quote.

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What is a depreciation schedule for a rental property and why you need one

BMT team — Sun, 02 Aug 2020 23:58:24 +0000

Local rental rates, market demand, unemployment, wage growth and other economic conditions can affect the return from your investment property. A common trait held by successful property investors is their ability to maximise cash flow during both the peaks and troughs of the market. One way they do this is by always claiming maximum depreciation deductions from their properties. In this article we will look at: What is rental property depreciation? Why do you need a depreciation schedule for a rental property? Do all investors need a rental property depreciation schedule? What does a depreciation schedule for a rental property include? How to organise a depreciation schedule for a rental property Key points: A depreciation schedule for a rental property allows the owner to claim thousands in depreciation deductions each financial year All rental property owners need a depreciation schedule to maximise returns Organising a BMT Tax Depreciation Schedule is easy. What is rental property depreciation? Rental property depreciation is the natural wear and tear of a building and its fixtures and fittings over time. As a property investor, you can claim depreciation as a tax deduction each financial year. One little-known fact about depreciation is that it’s a non-cash deduction. This means that you don’t need to spend any money in order to claim it. Despite this, many investors don’t claim rental property depreciation because they don’t know how or aren’t aware of the benefits. Why do you need a depreciation schedule for a rental property? If you’re thinking that you can go to your accountant and they will automatically determine your depreciation deductions, this is not the case. A tax depreciation schedule completed by a specialist quantity surveyor is an essential step to claiming depreciation. Your accountant then uses this to determine your depreciation deductions each financial year. Do all investors need a rental property depreciation schedule? Essentially, if an investor wants to claim depreciation they must have a tax depreciation schedule completed prior to the claim. This includes single owners and split owners. What does a depreciation schedule for a rental property include? A tax depreciation schedule holds everything you need to claim depreciation for the life time of your property (forty years). Some key features of a BMT Tax Depreciation Schedule includes: Breakdown of both plant and equipment and capital works deductions You can claim depreciation under two categories – capital works and plant and equipment. Your schedule breaks down these deductions to the year, making tax time simple and easy. Forecasts It’s always good to see what deductions are available in the future. A BMT Tax Depreciation Schedule provides multiple forecasts to ensure you know how much money you can get back in your pocket each financial year. Diminishing value and prime cost deductions Plant and equipment deductions can be claimed using either the diminishing value or prime cost methods of depreciation. Once a method of depreciation is chosen, it can’t be changed. A schedule provides an overview of the deductions using both methods and your accountant can help you choose the best method for your investment strategy. Pooling schedules Plant and equipment assets that are eligible for the low-value pool can be depreciated at an accelerated rate. The specialist BMT team identifies every qualifying asset for the low-value pool and includes these in pooling schedules. Designed for accountant software and ATO MyTax BMT works closely with accountants to make sure that claiming depreciation is both beneficial and easy. A BMT Tax Depreciation Schedule is designed to seamlessly integrate with accounting software and the Australian Taxation Office MyTax portal. Easy to amend Property is a tangible asset, therefore changes and improvements can be made over time through renovations and repairs. If you’ve made an improvement to your investment property, you don’t need to have an entirely new schedule completed. BMT can easily update your current schedule to include any new additions at a small, tax deductible fee. How to organise a depreciation schedule for a rental property The first step is to enlist a specialist quantity surveyor, such as BMT Tax Depreciation. BMT can provide an obligation-free estimate of likely deductions. If you wish to proceed with having the schedule completed, a specialist BMT site inspector will come to your property to complete a comprehensive site inspection. The site inspection is a significant step. Doing so ensures that nothing is missed, and any deduction determined from the schedule is compliant. Both the Australian Institute of Quantity Surveyors and the National Tax and Accountants’ Association support the requirement for physical site inspections and note that costly errors can be made when they are not completed. To learn more about what a depreciation schedule is for a rental property, Request a Quote or contact BMT on 1300 728 726.

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How to calculate rental yield

BMT team — Wed, 08 Jul 2020 03:19:34 +0000

If you’re looking to purchase a new property or evaluate the performance of a current property, there are some basic measurements that you need to know. Yield is a regularly used measurement to demonstrate the income returned on an investment. Unlike capital growth, yield measures the rate of income return based on the property’s annual cash flow and its value. A property’s rental yield is a good indication of it’s likely gearing. As a property investor, you should know how to calculate rental yield and what your yield should be. In this article we will cover: What is rental yield Types of rental yield Gross rental yield Net rental yield What is a good rental yield? How does depreciation affect rental yield? Key points: Rental yield measures the income return you make from your investment property each year There are two key types of yield for investments: gross yield and net yield An ideal rental property yield depends on the property’s characteristics and the local market What is rental yield Rental yield is the difference between your rental property’s income and expenses. This difference is then measured against the property’s value. Types of rental yield There are two key types of rental yield to consider and understand, gross yield and net yield. Gross rental yield Gross rental yield calculates the total rental yield before considering any expenses. It’s found using the annual rental income and the investment property’s value. In practice: how to calculate gross rental property yield Kim owns an investment property. She receives $40,000 per year in rental income and the property’s value is $800,000. The following calculation determines Kim’s gross rental yield of 5 per cent: 40,000 ÷ 800,000 x 100 = 5% Net rental yield Net yield considers the same elements as gross rental yield, but also factors in any property-related expenses. It’s important to consider net yield as it’s an accurate reflection of your property’s return. Some common expenses include property management fees, insurance, maintenance and repair fees, council rates and depreciation. You may be surprised to know that interest repayments aren’t generally included in the net yield calculation. This is because interest repayments aren’t classed as a direct property-related expense. Instead, they are related to your own financial circumstances. In practice: how to calculate net rental property yield To determine her net yield, Kim factors in her annual property-related expenses that come to $10,000. The following calculation determines Kim’s net rental yield of 3.75 per cent. ($40,000 – $10,000) ÷ $800,000 x 100 = 3.75% What is a good rental yield? There’s no magic number when it comes to determining what is a good rental yield. It largely depends on the specific characteristics of the property such as location, value and your personal investment property goals. Positive rental yields are favourable as they reflect a stable cash flow. It’s important to note that yield shouldn’t be considered solely on face value, you must uncover the elements behind the number and take a holistic approach. According to the May 2020 Corelogic Hedonic Home Value Index, gross rental yields among Australia’s capital cities range between 2.9 and 5.8 per cent. While gross rental yield across the country’s regional areas range higher, at between 4.5 and 6.7 per cent. Insights such as these can prove beneficial when determining what a good rental yield is. How does depreciation affect rental yield? Property-related expenses are included in the net rental yield, resulting in a reduced yield compared to gross rental yield. It’s key to remember that not all deductions you claim are a result from making a property-related expense. Depreciation is the second biggest investment property tax deduction after interest, and it doesn’t cost you any money. Depreciation is the natural wear and tear of a building’s structure and its assets over time. It’s a non-cash deduction, this means you don’t need to spend any money in order to claim it. BMT Tax Depreciation has been the most trusted specialist in the industry for over 20 years. We have completed more than 700,000 tax depreciation schedules for investors, Australia wide. To start claiming depreciation on your investment property, Request a Quote or contact BMT on 1300 728 726.

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Uncover the benefits of negative gearing property

BMT team — Tue, 26 May 2020 22:52:11 +0000

There are many technical intricacies of investing in property, with negative gearing being a highly discussed topic in the industry. As investors choose to hold onto their negatively geared property due to their own long-term investment strategies, it’s important to understand the benefits. In this article we will explore: Key benefits of negative gearing property 1. Reduction in taxable income 2. Long-term gain Lucrative depreciation deductions are available for all properties Key benefits of negative gearing property When a property is negatively geared, it’s making a loss. Due to the current COVID-19 pandemic, many Australian property investors are facing negative returns from their investment properties due to loss of rental income. While everyone’s financial circumstances are different, the benefits of negative gearing help investors to reduce their taxable income. It’s important to note that deciding whether to keep a negatively geared property is a significant financial decision. Everyone’s decision-making process and investment strategy is different, but the two key benefits are the same for all. 1. Reduction in taxable income The loss made from a negatively geared property reduces an investor’s taxable income for each financial year. This tax offset can provide benefits for many types of investors, especially those with high marginal tax rates, or rentvestors that are wanting to capitalise on their investment while they build their portfolio. Let’s look at a practical example to understand how this works. Joe works as an engineer for a construction company. He purchased his first investment property in 2019. The property is leased to tenants who paid $25,000 in rent for the 2019-20 financial year. While the property produces rental income, it also has many associated expenses. For the 2019-20 financial year, there was a total of $35,000 in expenses, including depreciation, interest repayments, insurances, property management fees and maintenance costs. This resulted in a total loss of $10,000 for the 2019-20 financial year. Joe can use this loss to reduce his taxable income. With his tax rate of 32.5 per cent, this loss brings his tax bill down by $3,250. This effectively reduces his investment property’s loss to $6,750. Given his goal of long-term capital growth, Joe is comfortable making a $6,750 loss. 2. Long-term gain Property is a tangible and resilient asset. While the market is not constant and regularly fluctuates, property values generally increase over time and so do rental rates. An investor who is keeping their negatively geared property may be looking to capitalise by selling when it’s value increases or take advantage of higher rental returns in the future. This long-term capital gain often offsets the short-term loss. Lucrative depreciation deductions are available for all properties Property depreciation is the natural wear and tear of the building and its assets over time. Investors of income-producing properties can claim this depreciation as a tax deduction. Depreciation is a non-cash deduction, meaning that an investor doesn’t need to spend money in order to claim it. All investment properties hold depreciation deductions that can unlock hidden cash flow. The gearing of a property doesn’t impact whether an investor can claim depreciation. In some instances, depreciation can change a previously positively geared property to be negatively geared without experiencing a further loss. BMT Tax Depreciation has been the most trusted depreciation specialist in the industry for over 20 years. With offices Australia wide, they can provide comprehensive depreciation schedules to all investors and in turn, help them maximise their cash flow. To learn more about depreciation, or what is involved in a tax depreciation schedule, Request a Quote or contact the expert team at BMT on 1300 728 726. Related articles: How does negative gearing work with depreciation? Negative gearing: basics for beginners

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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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How does negative gearing work with depreciation?

BMT team — Sun, 23 Feb 2020 22:57:56 +0000

If you paid close attention to the 2019 Federal Election, you would be familiar with the term negative gearing. The election put negative gearing policy into question, with Labor including a proposal to limit negative gearing to brand-new residential housing. However, with The Coalition retaining their position, no changes to negative gearing were made. In this article we will explore: What is negative gearing and how does it work? If it means making a loss, why do investors keep their negatively geared properties? How does negative gearing work with tax depreciation What is negative gearing and how does it work? Negative gearing is when someone borrows money for an investment, and the rental income is less than the interest repayments and expenses. An investor’s rental property can be positively or negatively geared. When an investment property is negatively geared, the property’s expenses and deductions are more than the property’s rental return. This means that the investor is making a loss that is deducted from their taxable income for that financial year. Whereas, for a positively geared property, the rental income produced by the property exceeds expenses. An investor of a positively geared property makes a gain that is included in their taxable income. If it means making a loss, why do investors keep their negatively geared properties? You must consider the sustainability of a negatively geared property in all your investment decisions. For investors in Australia, there are some benefits of having a negatively geared property, including: Reduction of taxable income: You can use the loss of a negatively geared property to reduce your taxable income and boost your after-tax cash flow. This can be beneficial in the short term and for rentvestors that are in the early stages of entering the market. Long-term capital growth: National property values have increased significantly over the past decade, and the current outlook suggests that they will continue to rise. While a negatively geared property does mean making a short-term loss, the investor can offset the losses by benefiting from the long-term capital gain of selling the property once its value increases. How does negative gearing work with tax depreciation Investment property deductions include expenses such as interest payments, maintenance costs, insurance and property depreciation. Both capital works and plant and equipment deductions are included in property depreciation. Find out more information on available plant and equipment deductions. Tax depreciation deductions can change a previously positively geared property to be negatively geared without incurring a further loss as depreciation is a non-cash deduction. Below is a simplified example to show how this works: Example: Property gearing with and without depreciation An investor earns $80,000 a year and pays approximately $17,500 in tax. The investor receives $25,000 in rental income from their investment property. The taxdeductible expenses include interest expenses of $10,000, maintenance expenses of $10,000 and landlord insurance of $2,000. The property is positively geared with a $3,000 return. By including depreciation, the investor was able to claim capital works and plant and equipment deductions in their tax return, which came to $6,000 for that financial year. This changes the previously positively geared property to be negatively geared with a $3,000 loss. The investor’s tax liability decreases to approximately $16,500 rather than increasing to approximately $18,500 when positively geared. A reliable pre-tax cash flow is key for a sustainable investment, and we recommend speaking with a financial adviser to determine your investment strategy. If your goal is to hold onto a negatively geared property to benefit from the long-term capital gain, you must also be aware of the Capital Gain Tax (CGT) liabilities of making this profit. To find out more about CGT and how it works, we have included further information in the articles below. For more information on tax depreciation and how it can maximise your tax return, request a quote or contact our specialist team on 1300 728 726. Related articles Negative gearing: basics for beginners What should you know about negative gearing before the 2019 Federal Election When do you pay capital gains tax on investment property? Does depreciation affect capital gains tax?

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Australian smoke alarms regulations and rules for landlords

BMT team — Fri, 23 Aug 2019 00:20:36 +0000

Smoke alarm rules vary across Australia, but generally they must meet Australian Standards. Below is a summary of the regulations in your state. It’s recommended to refer to your relevant state authority for specific legislative requirements. Contents Queensland New South Wales Victoria Tasmania South Australia Western Australia Northern Territory Australian Capital Territory Why comply? Depreciation deductions for smoke alarms Queensland New smoke alarm legislation states all Queensland residences must be fitted with interconnected photoelectric smoke alarms. They must comply with Australian Standard (AS) 3786-2014 and are required in all new dwellings and substantially renovated dwellings (this applies to building applications submitted from 1 January 2017). To ensure you remain compliant, and for more information visit New Queensland smoke alarm legislation. New South Wales In New South Wales, smoke alarm compliance is regulated by the Environmental Planning and Assessment Amendment (Smoke Alarms) Regulation 2006 and the Residential Tenancies Act 2010. Smoke alarms installed after 1st May 2006 must comply with Australian Standards AS3786. There must be at least one working smoke alarm installed on every level of a home or residential building where people sleep. This includes rental properties, relocatable homes, caravans and campervans. Fire and Rescue New South Wales recommends additional precautions be undertaken, including placing interconnected smoke alarms in all bedrooms, living areas, hallways, stairways and also within the garages of homes. Landlords are responsible for replacing wireless smoke alarms with new batteries at the start of a tenancy. Once the tenancy has begun, the tenant then becomes responsible for replacing the battery, as required. In addition, landlords are also responsible for replacing hard-wired smoke alarm back-up batteries. Victoria All homes, units, flats and townhouses constructed after 1st August 1997 require smoke alarms that must comply with Australian standards AS3786 and are interconnected to 240-volt mains power. Additionally, a backup battery must also be installed within the smoke alarm itself. Homes constructed after 1 May 2014, which have undergone any major renovations require more than one interconnected smoke alarm installed. Tasmania From 1st May 2016, all rental property smoke alarms must be mains powered or have a ten year non-removable lithium battery. The device must meet the Australian Standard AS 3786 – 2014 or AS 1670.1 – 2015. Tenants must test each smoke alarm and notify the owner or property agent if it’s not working. Landlords must ensure smoke alarms are compliant with regulations and repair or replace the smoke alarm or battery as soon as possible, if notified by tenants of any issues. They must clean, test and ensure all alarms are working correctly prior to leasing a property. Alarms should also be replaced every ten years. South Australia Homes or residential rental properties purchased prior to 1st February 1998, must have a replaceable battery powered smoke alarm installed to comply with legislation. Homes or residential rental properties purchased on or after to 1st February 1998 must comply with Regulation 76B of the Development Regulations 2008 and smoke alarm(s) must be installed within six months from the day of title transfer. They must be a 240 volt, mains-powered smoke alarm or contain a 10-year life tamper proof battery, permanently connected. Homes or residential rental properties built on or after 1 January 1995 must comply with The Building Code of Australia, requiring a 240 volt, mains powered smoke alarm be installed. For any new residences, additions or extensions to existing properties require interconnected smoke alarms be installed and both homeowners and residential landlords are responsible for ensuring compliant working smoke alarms are installed. Western Australia Western Australia’s Building Regulations 2012 requires homeowners to comply with Building Code of Australia (BCA) guidelines on the placement and installation of smoke alarms. From 1st May 2017 all newly installed smoke alarms must now comply with AS3786:2014. Regulations require that smoke alarms for homes newly built after 1st May 2015, must be interconnected to power mains. For those intending to sell or lease their property, smoke alarms should also have been installed less than ten years prior and must be in good working order. Northern Territory Legislation requires hard-wired photoelectric smoke alarms or those with sealed battery units containing a ten year life lithium battery be installed in all residential properties and movable dwellings, including caravans. Any hardwired smoke alarms must be installed by licensed electricians, but battery-powered smoke alarms can be installed by anyone following manufacturer instructions. Property owners are required to test each smoke alarm at least once per year. Where impractical for an owner or investor to personally maintain, test or replace alarms, they can nominate a proxy, such as a property manager to act on their behalf. Tenants are obligated to test each smoke alarm at least once per year and notify the owner or property agent of any smoke alarm issues. Australian Capital Territory The ACT residential Tenancies Act was amended on 24th August 2017. Existing rental property owners have until 24th August 2018 to ensure their smoke alarms comply with the legislation. Property owners must install working smoke alarms that comply with Australian Standard AS3786(1) and with the Building Code of Australia. Working smoke alarms must be installed on each level of the property and with one located in each space between bedrooms. Homes constructed after 1994 must have at least 240 Volt hard-wired smoke alarms. Homes constructed prior to 1994 can have 9 Volt battery-operated smoke alarms. Tenants are required to test and replace smoke alarm batteries as required. Why comply? Ensuring your property and the tenants are protected is paramount. Complying with the rules and regulations surrounding the type and installation of smoke alarms will also ensure you can continue to lease and/or sell your investment property and avoid non-compliance penalties. Depreciation deductions for smoke alarms You can benefit financially from the legislative changes for smoke alarms. Residential property smoke detectors are considered a plant and equipment asset and can be depreciated at a rate of 10 per cent per year over a maximum twenty year effective life. If the smoke alarm costs less than $300, these […]

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