Can you claim previous renovations?

BMT team — Fri, 25 Aug 2017 02:52:46 +0000

One question often asked by investors who are considering purchasing an existing second-hand property is whether or not they can claim deductions for work that has been completed to the property by a previous owner. The rules have always been complicated for investors and for this reason it is best to consult with a specialist Quantity Surveyor for advice for any property being considered and to obtain a comprehensive depreciation schedule. Given the federal government has recently proposed changes to the way plant and equipment items are depreciated, the rules could get even more complicated in future. To help investors let’s take a look at the existing rules which apply, the proposed new legislation changes and some of the property items which may hold hidden depreciable value for investors which they may be unaware of. Unfortunately this often means they can miss out on claiming the maximum deductions available. In this article we will explore: Claiming deductions for the building structure and any structural work Claiming deductions for plant and equipment assets installed by previous owners Example scenario – deductions for work completed by a previous owner Claiming deductions for the building structure and any structural work Under existing depreciation legislation, the Australian Taxation Office (ATO) allows investors to claim capital works deductions in any residential building where construction commenced after the 15th of September 1987. Capital works deductions make up 85-90 per cent of a total depreciation claim. This applies to the structural items of the building and any fixed items, such as the walls, doors, windows, kitchen cupboards, retaining walls, toilets, sinks and the roof. For a residential property, investors are eligible to claim capital works deductions at a rate of 2.5 per cent per year for a maximum of forty years from the property’s completion date. Many investors think that due to these date restrictions, if a property pre-dates 1987 they won’t be eligible to capital works deductions. However, this is often not the case, as many investment properties built prior to 1987 have undergone some form of renovation. The ATO allow owners of properties to claim capital works deductions for structures added by a previous owner so long as the work is completed within the qualifying dates. The good news for investors is that the federal government have not made any changes to the way in which capital works deductions will be applied in future within the drafted legislation proposed. Claiming deductions for plant and equipment assets installed by previous owners This is where the rules could become more complicated in future. Under existing legislation investors could claim plant and equipment items (which are the easily removable assets for example ovens, range hoods, smoke alarms, carpets and exhaust fans) in any residential property no matter how old the building. For these items, the ATO sets an effective life over which deductions should be claimed. However, the rules may change under the federal government’s proposed new legislation and any investor who exchanges contracts on a second-hand property after 7:30pm on the 9th of May 2017 will no longer be eligible to claim deductions on plant and equipment assets installed by a previous owner, only on those items they add to the property themselves. It’s important to be aware that owners of newly built properties will still be able to continue to claim plant and equipment depreciation deductions as normal. For those who exchanged contracts prior to the 9th of May 2017 there is more good news. The federal government has advised that new legislation policy will be grandfathered. This means these investors can continue to claim depreciation for work completed by previous owners under the pre-existing legislation. Of course, the changes are dependent on the outcome of the government passing the draft legislation through the senate. Example scenario – deductions for work completed by a previous owner The following table provides examples of some of the deductions an investor could claim for work completed to an investment property by a previous owner. In the above scenario, the investor exchanged contracts and settled on the property prior to the 9th of May 2017. Therefore they are still eligible to claim depreciation for plant and equipment additions that were made by a previous owner. They also will be eligible to claim capital works deductions for structural work completed. However, if the proposed new rules are implemented and the work completed above is in a property where the investor exchanged contracts after the 9th of May 2017, the deductions would be reduced to only include the structural work completed including fixed items (such as the retaining wall, the outdoor deck, kitchen cupboards and toilet). The table below demonstrates the difference in deductions for an investor who exchanges contracts after the 9th of May 2017 based on the proposed new legislation. If an investor purchases new plant and equipment assets themselves and has these installed to a property, the depreciation for these assets will be able to be claimed using the existing depreciation methods, no matter how old the property is or when they exchanged contracts. A specialist Quantity Surveyor can ensure that an investor claims the correct depreciation deductions based on their individual scenario, including any work completed during renovations. By contacting an expert and arranging a comprehensive tax depreciation schedule, this can help an investor to ensure the deductions they claim are correct and in line with the latest policy enforced by the ATO.

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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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Can you claim previous renovations?

Investors can now have their say on proposed depreciation changes