» property investor

What residential investors need to know about the 6 month moratorium on evictions

BMT team — Tue, 09 Jun 2020 22:38:35 +0000

In late March 2020, the Federal Government announced a moratorium on evictions over the next six months for tenants experiencing financial hardship due to the COVID-19 pandemic. This moratorium was enacted by state and territory governments and caused some confusion among property investors. While the specifics of the moratorium change depending on your location, here are some key factors to keep in mind. Contents: What is a moratorium? Negotiation is key The 6 month moratorium on evictions does not apply for all Both landlord and tenant can agree to end a tenancy Depreciation will continue to maximise cash flow What is a moratorium? A moratorium is a temporary suspension of an activity or law until circumstances allow a lift of the suspension or related issues have been resolved. The current 6 month moratorium on evictions is part of the Government’s hibernation strategy to reach the other side of the COVID-19 pandemic. The moratorium applies for both residential and commercial tenancies. Negotiation is key The moratorium is designed to protect and support tenancies to continue wherever possible. The emphasis is on both the landlord and tenant to negotiate a temporary arrangement during these unprecedented times. This does not necessarily mean that the agreement must waive weekly rents. Some key areas of negotiation could include whether rent can be waived or deferred or reduced, the amount of rent payable for a period, review dates of the temporary agreement and repayment plans. Where possible, landlords are encouraged to pass on any reduction in their own expenses to their tenant. This could include factors such as reduction in land taxes and mortgage repayment deferrals. It’s important that investors remember their property manager is available to help with negotiations as they navigate through the changing environment. In most instances, a property manager is the middle person who facilitates the agreement between landlord and tenant. The 6 month moratorium on evictions does not apply for all The state and territory governments have implemented the eviction moratorium in different ways. A key overarching theme is that a tenant must be financially disadvantaged due to COVID-19. A detailed example is the New South Wales Government’s eligibility requirements. To meet the requirements of the 60-day stop on evictions and the longer six month restrictions, a household in NSW is classed as impacted if: one or more rent-paying members of the household have lost employment or income due to COVID-19 one or more rent-paying members have had to stop working due to their illness, another household member illness or carer responsibilities due to COVID-19 the above factors result in a household income reduction of 25 per cent or more. As mentioned, eligibility requirements for the 6 month moratorium on evictions change based on your location. It’s key to check your local government requirements and facilitate communication with your tenants. Both landlord and tenant can agree to end a tenancy In some cases, the best outcome for all parties involved is to end a tenancy. A tenant and landlord can still agree to end a tenancy and mutually decide when and how this is to happen. For example, a tenant may decide it’s better for their personal situation to live with family at this time and the landlord may want to sell the property or do several renovations. Depreciation will continue to maximise cash flow Depreciation is a non-cash deduction, meaning property owners don’t need to spend any money to be eligible to claim it. A rental property doesn’t need to be leased in order to claim depreciation. If the property is classed as genuinely available for rent, the owner can benefit from many depreciation deductions on the building’s structure and eligible assets. BMT Tax Depreciation is the most trusted specialist in the industry and has completed over 700,000 tax depreciation schedules, Australia wide. BMT found clients an average of almost $9,000 in first full financial year deductions last financial year. To learn more about depreciation and how it can help maximise your cash flow, Request a Quote or contact BMT on 1300 728 726.

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Are refinance costs tax deductible on a rental property?

BMT team — Tue, 25 Feb 2020 23:08:11 +0000

Interest rates are at historic lows and many property investors are searching for a better deal on their mortgage. When weighing up the costs and benefits of refinancing, investors need to be aware of what refinance costs are tax deductible on rental property to boost their cash flow. In this article, we will answer the following: Are refinance costs tax deductible? How are costs deducted? Why investors choose to refinance Some costs are considered capital and will impact capital gains tax Key points: Refinancing involves replacing an existing mortgage with a new one A key reason why someone refinances is to get a lower interest rate and reduced fees For investors, some of the costs of refinancing their rental property are tax deductible Are refinance costs tax deductible on rental property? Refinancing a mortgage is when a property owner replaces their existing loan with a new one. Unlike owner-occupier homeowners, property investors can benefit from many refinance costs tax deductions. Some of the fees an investor can expect to claim are: loan establishment fees such as the application fee early discharge fees fixed rate loan break fees any title search fees charged by your lender valuation fees charged by your lender mortgage broker fees lenders mortgage insurance billed to the borrower The average cost of refinancing fees can change, so it’s always a good idea to discuss these with your lender to get a full picture. How are the costs deducted? If the total refinancing fees are more than $100, they can be claimed over a five year period or the term of the loan, whichever is earlier. When an investor uses part of their refinanced mortgage for private purposes, all deductions must be apportioned. For example, if 30 per cent of their rental’s refinanced mortgage was used to purchase a new private residence, all deductions for the borrowing costs and ongoing interest expenses need to be apportioned. Why property investors choose to refinance their mortgage A property investor’s new mortgage could be with a different or the same lender. Deciding whether to refinance is a significant decision that should only be based on your own circumstances. There are many reasons why an investor would decide to refinance their mortgage, such as to get a lower interest rate, shorter terms, reduced fees or changing their mortgage rate from a fixed to an adjustable rate. Some costs are considered capital and will impact capital gains tax Any capital costs that an investor incurs from refinancing aren’t tax deductible and instead form a part of the property’s cost base. Capital costs can include conveyancing fees, building and pest inspection fees, valuation fees when a private valuation is done by your solicitor and if applicable, stamp duty on the transfer of property. The capital costs an investor may need to pay when refinancing their home can decrease the amount of payable Capital Gains Tax (CGT) when selling the property. We recommend speaking with your accountant to make sure all capital costs are included. For more information about how BMT Tax Depreciation works closely with your accountant to maximise your return, request a quote or contact our specialist team on 1300 728 726.

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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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Rentvesting – a step on the first rung of the property ladder

BMT team — Thu, 25 Apr 2019 23:46:02 +0000

Rentvesting is a clever way to get your feet on the first rung of the property ladder. It has become more popular in recent years thanks to rising property prices and issues with housing affordability. This was shown in the latest statistics from the Australian Bureau of Statistics (ABS) on Housing Occupancy and Costs for the 2015/2016 financial year published in October 2017. According to the ABS, more than 1.78 million Australian households owned a residential property other than the one they currently reside in. Of these households, 342,000 owned a residential property but were renting their usual residence. Given rentvesting’s rising popularity and ability to help both home buyers and investors to enter the property market, let’s look at what this method involves as well as some of the pros and cons to be aware of. What is rentvesting? Breaking into the property market can be difficult and rentvesting allows you to buy an investment property in an area you can afford while renting a property in a location that suits your lifestyle. Rentvesting can help you get into the property market sooner, particularly if buying a first home in the area you live is currently out of reach. By buying an investment property, rather than a home, you can build a property portfolio which can later be used as leverage to help afford a home, or even additional investment properties down the track. Let’s say you want to buy a four-bedroom home in a popular Melbourne suburb, but the sale prices in the area mean these homes are out of your reach. The rentvesting solution to this problem would be to rent the ideal four-bedroom home in your desired suburb where you want to live and then buy an investment property in a suburb where house values are more affordable. Renting the investment property to tenants will help you to pay off the loan rather than having to use part of your income or savings to meet regular loan repayments. Over time, the property may increase in value, building the equity you need to meet any loan requirements necessary to purchase a home or expand your portfolio down the track. Pros of rentvesting There are a number of pros for those who decide to employ rentvesting as part of their investment strategy. Apart from the obvious financial freedom this method provides, one key benefit is the ability to live in an area that suits your current circumstances. Location is key and often rentvestors will rent in a location that is close to where they work or study, or in an area that is within reach of features that are important to their desired lifestyle such as beaches, parks and restaurants. Given rentvestors are generally of the younger generation, they often aren’t ready to purchase a home in an area where they may not plan to stay for the long term. The flexibility to complete study, travel or move from place-to-place while still purchasing a property as an investment is a drawcard for those thinking about whether to rentvest. Similarly, rentvesting provides an opportunity to live in the property that you want to live in, now. If a property in a desired location is unaffordable, why not rent and achieve the living conditions you want now rather than compromise? Owning an investment property also provides you with a range of tax benefits. In addition to earning a rental income you can claim expenses involved in holding the property such as interest on your loan, property management fees, repairs, insurance, maintenance and property depreciation. These tax deductions are only available if a property is income producing and cannot be claimed on a home. This additional cash flow also helps to make owning a property more affordable. Cons of rentvesting While rentvesting might sound appealing, not all aspects of this strategy are positive. Firstly, when you rent a property there is no guarantee that you can stay there for the long term. A landlord may decide to sell the property or move into it themselves, forcing you to find another home. While notice is required, there may not be enough time to find another property that meets all your desired needs and matches up to your expectations. You also can’t personalise the property. In a rental property you are limited to the amendments and updates the landlord is willing to take out. You can’t renovate to add new features and often even require permission if you wish to hang pictures in any permanent fashion. You have to be willing to compromise and live with what you have. Finally, owning an investment property is not without its risks and you should seek both financial and tax advice. Property markets fluctuate, and you may not achieve the capital gain to produce the equity needed to buy another property in the short term. It’s important to stay in tune with what is happening with prices in the area. Choosing the best rental property to live in while you rentvest Every individual will have a different idea of what they need in order to feel comfortable in their home. Start by making a list of things you desire as well as the things you can’t live without. Do you need a certain number of bedrooms? Is it essential for there to be two bathrooms or a two car garage? Picking a suburb location which has these main features is the next step. Decide where you need to live in relation to work and set a budget of how much you want to spend in rent to help narrow your search. Wherever you choose, check access to transportation hubs and nearby facilities and even do a search to gauge whether vacancy rates for the area are high. This can be handy to know in case you have to move if your landlord decides to make any changes after your tenancy agreement ends. Finding the right investment property in which to rentvest The key is to do […]

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PAYG withholding variation – how to make the most of property tax deductions

BMT team — Wed, 05 Dec 2018 03:27:54 +0000

Property investors often rely on tax breaks to help them afford their property. Waiting until the end of the financial year to receive your tax return can cause cash flow problems, particularly when unexpected repairs and maintenance crop up. But the good news is you don’t have to wait until the end of the financial year to receive your claim. Deductions for expenses related to owning an investment property, such as interest, rates, repairs and maintenance, property management fees, capital works and plant and equipment depreciation can be received on a more regular basis throughout the year simply by choosing to use a Pay As You Go (PAYG) withholding variation. A PAYG withholding variation allows you to take advantage of deductions regularly, rather than in one lump sum at the end of a financial year. It allows your employer to vary the amount of tax withheld to anticipate tax liabilities and as a result you can adjust what you receive in your fortnightly income. Contents: A simple four-step process for setting up PAYG withholding variation How will depreciation deductions make a difference? Speak with a depreciation expert A simple four-step process for setting up PAYG withholding variation Contact an Accountant to make sure that this is suitable for your circumstances. An Accountant will usually organise a PAYG withholding variation by submitting estimated financial information to the Australian Taxation Office (ATO) To support your PAYG withholding variation, contact a specialist Quantity Surveyor to order a tax depreciation schedule. This schedule will outline all current and future depreciation deductions for an investment property. The higher the depreciation deductions are, the less tax you will need to be taken out of your pay. Once a request has been approved by the ATO, your employer will reduce the amount of tax withheld, increasing your take-home pay. Remember, a PAYG withholding variation doesn’t replace your normal tax return. You will still need to visit an Accountant at the end of the year to calculate the actual amount of tax liability. How will depreciation deductions make a difference? The following case study compares a PAYG claim with and without depreciation. In the case study, the investor owns a brand-new house purchased for $532,000 which is rented for $600 per week, an income of $31,200 per annum. They also have expenses for interest, rates, repairs and maintenance, property management fees and insurance totalling $41,400. Where depreciation isn’t claimed, the investor receives an additional $145 per fortnight in their pay by applying the PAYG withholding variation. But with a depreciation claim of $13,345, the investor receives $335, or an additional $190 in their fortnightly pay. As can be seen here, a PAYG withholding variation will provide added flexibility for a property investor. Having access to the extra money during the year makes it easier to manage cash flow, especially when there can be surprise costs such as urgent repairs or maintenance. The additional income also gives the owner the option to invest the extra money or reduce loan liabilities. Speak with a depreciation expert A PAYG withholding variation makes a difference to a property investor’s regular cash flow. A specialist Quantity Surveyor can add to this by providing a tax depreciation schedule before you submit a PAYG variation request. Quantity Surveyors are one of the few professionals qualified under the Tax Ruling 97/25 to estimate construction costs for property depreciation purposes. For obligation free advice about an investment property situation contact the expert team at BMT Tax Depreciation on 1300 728 726 or visit www.bmtqs.com.au.

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