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Claiming depreciation on your rental property

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

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

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Tess and Luke’s self-contained studio lured bidders

BMT team — Tue, 12 Nov 2019 00:06:15 +0000

Series underdogs Tess and Luke shocked the nation when they pocketed an eye-watering $730,000 for their renovation efforts on The Block. The Cairns couple sold their luxury St Kilda terrace at auction for $3.62 million, a staggering $630,000 over the reserve price. The terrace was championed for its exceptional design and first-class craftsmanship, both of which created a home with an exclusive edge. With three living and dining areas, four bedrooms, state-of-the-art kitchen, and four bathrooms, the property was bound to attract buyers from far and wide. But there was one clever feature that set the winning property apart from its neighbouring terraces. Tess and Luke’s winning feature The winning property featured its own self-contained studio, a design clearly favoured by bidders at auction. It should come as no surprise as savvy buyers often look for property with investment potential. A self-contained studio offers just that, especially when considering the lucrative depreciation benefits. The Australian Taxation Office (ATO) allows owners of income producing properties to claim deductions for the wear and tear that occurs as a building gets older and items within it wear out. These deductions can be claimed under two categories – capital works deductions and plant and equipment depreciation. Capital works deductions refer to the building’s structure and items considered to be permanently fixed to the property such as kitchen cupboards, doors and sinks. Plant and equipment assets are items which are easily removable from the property such as carpet, hot water systems and blinds. These assets have a limited effective life as set out by the ATO and can generally be depreciated over time. A BMT Tax Depreciation assessment showed that Tess and Luke’s entire terrace has $3.61 million in depreciation deductions claimable over the lifetime of the property should the buyer decide to use it as an investment. If the buyer lives in the property as their primary place of residence, they can still utilise the self-contained studio as an income generator. Investment opportunities for a self-contained studio An investor can lease or holiday let a self-contained studio. Both options offer an attractive income stream for the owner, particularly in metropolitan areas where affordable property is in demand. Whether it be a listing on Airbnb or an advertised rental property, when a self-contained studio is income-producing the owner is also entitled to substantial depreciation deductions, even if they are currently occupying the primary residence on the property. Eligible assets within the studio such as flooring can be depreciated based on their effective life which is set by the ATO and updated regularly through tax rulings. Capital works can also be claimed for the building’s structure and any permanently fixed items. Owners can claim these deductions for the period the studio is rented or genuinely available for rent. That is, the property is given broad exposure to potential tenants and considering all the circumstances tenants are reasonably likely to rent the property. The best way to ensure you claim maximum depreciation deductions is to arrange a tax depreciation schedule. A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of a property and is 100 per cent tax deductible. During the FY 2018/19, we found residential property investors an average first year deduction of almost $9,000. For more information, simply Request A Quote or speak with one of the expert team at BMT Tax Depreciation on 1300 728 726.

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6 mantras from investment property experts

BMT team — Wed, 13 Feb 2019 05:35:32 +0000

Property investment is one of the best forms of accumulating long-term wealth. However, the journey to success can have ups and downs. To be a successful property investor, it’s important to be persistent and stay determined. The advice of experts can help you to maintain a positive mindset and stay motivated. We’ve gathered a few of our favourite mantras from top investment experts: “If you’ve failed, that means you’re doing something. If you’re doing something, you have a chance.” Robert Kiyosaki (Author of Rich Dad Poor Dad) “90 per cent of all millionaires become so through owning real estate… The wise young man or wage earner of today invests his money in real estate.” Andrew Carnegie (billionaire Industrialist) “You will come to know that what appears today to be a sacrifice will prove instead to be the greatest investment that you will ever make.” Gordon Hickey (researcher) “Landlords grow rich in their sleep without working, risking or economising.” John Stuart Mill (Political Economist) “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” Warren Buffet (Investor and philanthropist) “It’s all about gaining as much knowledge as early as possible. I learned by hanging around the property industry, going to property events to talk about depreciation, reading books about the fundamentals. Due diligence is the key.” Bradley Beer (BMT Tax Depreciation CEO)

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