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Six depreciation questions to ask yourself this tax time

BMT team — Tue, 28 May 2024 05:53:56 +0000

With tax time fast approaching, here are six questions you should be asking yourself to ensure you’re getting the most out of your investment property. 1. What are some common deductions I’m entitled to as a property investor? As a property investor, you’re entitled to a range of tax deductions. These will help lower your taxable income and make owning an investment property more viable, particularly if you own a negative cash flow property. Some of the tax deductions available to investors include deductions on council rates, the interest from a mortgage, property management fees, land taxes, strata fees, maintenance costs, insurance, accounting fees and depreciation. Of these deductions, depreciation is the most often missed. This is because it is a non-cash deduction. That is, the owner does not need to spend any money to claim it. In fact, research has shown that 80 per cent of property investors are missing out on the depreciation deductions they’re entitled to. However, given that investors can claim an average of $9,000 – $15,000 in deductions in the first full financial year alone, this is a deduction that should not be overlooked. A BMT Tax Depreciation Schedule outlines all the deductions you can claim for your property. It lasts for forty years and the fee for preparing it is 100 per cent tax deductible. 2. I’ve bought an investment property in the last few months – can I make a claim this tax time? If you haven’t owned the property for long and it’s only been income producing for a few months in the last financial year, you will be able to make a partial year claim. The Australian Taxation Office (ATO) allows investors to make a claim for depreciation based on the amount of days a property was available for lease. This could be if you’ve only recently purchased an investment property and only have one month to claim for, or you use your home as a holiday rental for part of the year. A BMT Tax Depreciation Schedule makes a partial year claim like this easy for you and your Accountant. 3. Do I need to update my tax depreciation schedule? If you’ve made any updates to your property in the past financial year, such as a renovation, it’s a good idea to get in touch with your Quantity Surveyor to see if you will require an updated depreciation schedule. It’s important to be aware that there is a difference between a repair and a capital works improvement as this will affect your claim. The cost of any repairs can be claimed in full in the same financial year they are completed. An improvement, on the other hand, is when you improve the condition of an item or property beyond that of when it was purchased. Such improvements are capital in nature and must be depreciated over time. For this reason, if you’ve made any renovations or improvements to your property in the last financial year, you should seek the advice of a property depreciation specialist or Quantity Surveyor to ensure it is claimed correctly. An updated tax depreciation schedule may be required after a renovation to capture all newly installed plant and equipment assets or capital works expenditure. 4. Am I maximising the deductions for my property? It’s one thing to be claiming deductions, but are you maximising them? A Quantity Surveyor specialising in depreciation will be aware of all the techniques you can make use of to maximise and accelerate the deductions you’re entitled to. As well as identifying assets that others may miss, they will make use of tools such as low-value pooling, scrapping and split reports to maximise the deductions you’re legally entitled to and put more money back in your pocket sooner. 5. Can my Accountant organise my depreciation deductions? An Accountant should recommend that you claim depreciation, organise a schedule on your behalf or refer you to a Quantity Surveyor. They will however not be able to estimate construction costs or provide you with a tax depreciation schedule. Only a qualified Quantity Surveyor can do that. Quantity Surveyors are one of the few professionals recognised by the ATO to have the appropriate construction costing skills to estimate building costs for depreciation. However, not all Quantity Surveyors specialise in tax depreciation. Only a tax depreciation specialist such as BMT can be relied on to maintain detailed knowledge of all current ATO tax rulings relating to depreciation. Once you have a Tax Depreciation Schedule completed, your Accountant can input these deductions into your annual income tax return. 6. I’ve only just found out about depreciation. Does this mean I’ve missed out on past years’ deductions? Investment property owners often enquire about a property they have owned and rented for a number of years but have not claimed depreciation deductions for. The ATO allows tax returns to be easily adjusted for two years after the initial submission. This enables property owners to recoup some of the deductions that may have been missed. It is important to note that a separate application will need to be submitted for each financial year requiring an amendment. Income, depreciation and other claims made will impact the outcome of each tax return. In the situation where an investor has missed or not maximised their claim in previous years, the depreciation schedule can be tailored within the eligible years. To start claiming or maximising your depreciation deductions with BMT, request a quote.

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Start claiming depreciation deductions sooner

BMT team — Thu, 04 Apr 2024 00:13:07 +0000

With the end of financial year fast approaching, now is the time to get your tax depreciation schedule sorted if you haven’t already. There are significant advantages to ordering a depreciation schedule immediately after purchase that can help you to maximise your return and make the most of your investment. Before we look at those advantages, let’s recap what depreciation is and how it assists property investors. Contents: Depreciation deductions Claim the cost of your schedule straight away Partial year claims Receive payments regularly using Pay as You Go (PAYG) Claim missed deductions Depreciation deductions The Australian Taxation Office (ATO) allows property owners to claim the depreciation, or decline in value of an asset, as a tax deduction. Depreciation is a non-cash deduction, meaning an investor doesn’t need to spend any money to claim it. For this reason, depreciation deductions are often overlooked. This is a costly mistake for investors, as depreciation deductions carry significant taxation benefits. With tax time approaching, property owners should be sure they are claiming all the deductions to which they are entitled. Owners of income-producing properties can claim depreciation deductions related to the building’s structure as well as the plant and equipment assets within the property. It’s important to organise a depreciation schedule before the end of the financial year to maximise your deductions and claim everything you’re eligible for from the year. Failing to claim depreciation means missing out on thousands of dollars. In FY2022/2023 to-date, BMT found investors an average first year deduction of almost $9,000. Claim the cost of your schedule straight away A depreciation schedule has a one-off cost which lasts the life of the property (forty years) and will ensure the owner claims their depreciation entitlements correctly. The cost of the depreciation schedule is 100 per cent tax deductible. One of the advantages to ordering and paying for a depreciation schedule before 30 June is that an investor will be able to claim the fee straight back that financial year. This not only means less time out of pocket, but it eliminates the risk of forgetting to claim the depreciation schedule’s fee as a tax deduction in the following financial year. Partial year claims If a property has been owned and rented for only a short period, investors often postpone obtaining a tax depreciation schedule until the next year. However, there are ways in which partial year deductions can be maximised, resulting in extra cash for the owner. Usually, the total depreciation available in the first financial year is adjusted according to the portion of the year the property is owned. For example, if a property is owned for six months, then 50 per cent of the depreciation could become available. However, specialist quantity surveyors can use legislative tools to make partial year claims beneficial to property owners, regardless of the time a property is owned and rented. Immediate write-off is one tool used. Any item added to a property costing less than $300 can be immediately written off within the first year. This is regardless of how many days the property is owned in that year. Low-value pooling can also be used to maximise claims over a short period of time. Low-value pooling applies to items in an investment property that are worth less than $1,000. Placing items in a low-value pool allows the owner to accelerate the rate of depreciation, increasing deductions earlier. A high-quality tax depreciation schedule should include a partial year claim based on the time the property is rented. Receive payments regularly using Pay as You Go (PAYG) Investors often look forward to tax time. Many of the losses from holding a property can be claimed back, including interest, rates, repairs and maintenance, property management fees and depreciation deductions. Many investors may not realise that they don’t have to wait all year to benefit from the deductions available to them. Instead, they can improve their cash flow throughout the year simply by nominating to use a Pay as You Go (PAYG) withholding variation. Introduced in July 2000, a PAYG withholding variation allows individuals to vary the amount of tax withheld by their employer in each pay to anticipate their tax liabilities. This means that they can take advantage of the deductions available to them regularly, rather than waiting until the end of a financial year for their tax refund. By selecting a PAYG withholding variation, a property investor’s expected tax refund for the financial year is estimated. This allows their employer to take less tax out of their wages. As can be seen in the example, 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. It is important to note that submitting a PAYG withholding variation does not replace a normal tax return. A tax return still needs to be filed at the end of the year to calculate the actual amount of tax liability. Claim missed deductions If you have not previously claimed depreciation deductions on your investment property, the ATO allows you to recoup missed payments for past financial years by adjusting your tax return. This is particularly useful for first time investors who were previously unaware of depreciation deductions. It is always advisable to stay on top of your finances by claiming deductions in the applicable year, as delaying your claim will only add extra confusion and stress to your next tax return. Ordering your tax depreciation schedule before 30 June is important if you want to maximise your returns and keep your finances on track. If you have any questions about claiming depreciation, contact the expert team at BMT Tax Depreciation on 1300 728 726 or Request a Quote.

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Benefits of partial year depreciation deductions

BMT team — Sun, 20 Nov 2022 23:00:56 +0000

When property investors are preparing their annual income tax return, it’s important to organise a tax depreciation schedule for any recently purchased properties. Even if you have purchased a property in the lead up to the financial year and only owned it for a short period of time, there are still depreciation benefits. Partial year depreciation deductions can be maximised by your quantity surveyor by applying a pro-rata depreciation calculation, resulting in extra cash for you. In this article we will explore: Partial year depreciation deductions Immediate write-off Low-value pooling Talk to an expert Partial year depreciation deductions Investors can claim pro-rata depreciation deductions for the period their property is rented out or is 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. This is particularly important for holiday homeowners as the property may only be rented during peak seasons like Christmas and New Year. If you use your holiday property for both private and income-producing purposes, you can only claim a deduction for the period where it is income-producing. Partial year depreciation deductions may also apply to investors who have previously used the property as a primary place of residence. Be sure to speak to your quantity surveyor to ensure you claim correctly. BMT Tax Depreciation use legislative tools to make partial year claims more beneficial to new investment property owners. Methods used in pro-rata depreciation calculations include applying the immediate write-off rule and adding eligible assets to a low-value pool. Immediate write-off An immediate write-off applies to any item within an investment property with a value of less than $300, regardless of how long the property has been owned and rented. As an investor, you’re entitled to write-off the full amount of the asset in the first year. For example, if you purchase a new smoke alarm valued at $50 for your investment property, you can claim 100 per cent of the cost in the year of purchase. Low-value pooling Low-value pooling is a method of depreciating plant and equipment assets which have a value of less than $1,000. Any plant and equipment assets with a value of less than $1,000 can be included in a low-value pool and written off at an accelerated rate to maximise deductions. Item can be depreciated at 18.75 per cent in the first year and 37.5 per cent each year thereafter. This amount can be claimed in full in the relevant financial year regardless of how long the property was held for, even if it was one single day. Two types of depreciable assets can be allocated to a low-value pool: Low cost asset: a depreciable asset that has an opening value of less than $1,000 in the year of acquisition Low value asset: a depreciable asset that has an opening value of greater than $1,000 in the year of acquisition but the value after depreciating over time is now less than $1,000. This will only apply if you’ve previously used the diminishing value method. For example, if you purchase a hot water system worth $1,500 it can be depreciated using the diminishing value method. Once its depreciable value falls beneath $1,000, it will be added to the low value pool as it’s considered a low value asset. On the contrary, if the hot water system cost $900 at the time of purchase it would be automatically added to the pool as a low cost asset. It’s important to note that once an item is placed in a low-value pool, it cannot be taken out. Assets which form part of a group with a total cost exceeding $1,000 can cause confusion for property investors so it’s important to speak to an expert to clarify what can and cannot be claimed in a low-value pool. Talk to an expert To ensure all depreciation deductions are claimed correctly for the period a property is income producing or available for rent, investors should request a tax depreciation schedule. A BMT Tax Depreciation Schedule will outline all qualifying deductions from the date of settlement and include a partial year depreciation claim that is calculated pro-rata based on the time the property is rented.

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What you need to know when claiming property depreciation

BMT team — Thu, 16 May 2019 23:15:03 +0000

With tax time fast approaching it’s essential investors understand the importance of property depreciation and its financial benefits. In this article we will explore: What is property depreciation? Why you need a tax depreciation schedule What sets BMT Tax Depreciation Schedules apart Claiming property depreciation What is deductible under capital works allowance? What are plant and equipment assets? The difference between repairs and improvements What is property depreciation? Depreciation is the natural wear and tear that occurs to a building and the assets within it over time. Why you need a tax depreciation schedule Any property which generates income may be eligible for thousands of dollars in depreciation deductions. A BMT Tax Depreciation Schedule ensures investors don’t miss out on the hidden cash flow available for their properties. What sets BMT Tax Depreciation Schedules apart BMT is the largest and most successful tax depreciation company in Australia. During FY 2017/18, we found residential property investors an average first year deduction of almost $9,000 Tax Ruling 97/25 states Quantity Surveyors such as BMT Tax Depreciation are one of the only professions qualified to estimate construction costs for depreciation Our schedules last for the forty-year life of an investment property BMT Tax Depreciation Schedule fees can be claimed in your tax return. Claiming property depreciation A BMT Tax Depreciation Schedule includes a detailed outline of two major components – capital works deductions (division 43) and plant and equipment assets (division 40) Capital works allowance refers to the tax deductions for the building’s structure and items considered to be permanently fixed to the property. Plant and equipment assets refer to items which can be easily removed from the property. What is deductible under capital works allowance? Capital works allowance or ‘building write-off’ is a deduction available for the structure of the building and items such as sinks, baths, built-in kitchen cupboards, clothes lines and doors Generally, residential properties in which construction commenced after 15th September 1987 can claim capital works deductions at 2.5 per cent for forty years Commercial properties in which construction commenced after 20th July 1982 are also eligible, though the deductions will vary based on the type, age and historical construction cost of the property. What are plant and equipment assets? Plant and equipment assets refer to items that can be easily removed from the property or are mechanical in nature such as hot water systems, ovens, carpet and blinds Deductions for plant and equipment assets are based on the condition and quality of each individual asset Under current legislation, owners of second-hand residential properties who exchanged contracts after 7:30pm on 9th May 2017 cannot claim deductions for previously used plant or equipment assets. Owners are still eligible to claim for any brand-new plant or equipment assets they add to the property It’s important to note that investors who purchase brand-new residential and substantially renovated properties, commercial real estate or add new plant and equipment assets to a second-hand residential property can still claim substantial depreciation deductions. Visit BMT to enquire about the possible depreciation deductions available on a current or potential investment property. The difference between repairs and improvements Deductible repair: returning items or property to their original state to retain their value. Repairs attract an immediate 100 per cent deduction in the year of expense Improvement: improving the condition of an item or property beyond that of when it was purchased. Improvements are capital in nature and as such, must be depreciated over time. For a free assessment of likely depreciation deductions, contact BMT Tax Depreciation today on 1300 728 726.

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Tax tips for commercial owners and tenants

Chan Naylor Team — Wed, 07 Jun 2017 23:32:58 +0000

The end of the financial year is almost here so let’s take a look at some tax considerations for commercial property investors and tenants. Here are some tax tips for first time investors in commercial property and for those who have leased their first commercial premises this year. Before purchasing a commercial property you should consider the type of structure to hold the property in because it can significantly affect your tax liabilities For instance, commercial property is one of the assets which Self-Managed Super Funds (SMSFs) can hold. Remember that super funds tend to pay less tax. You should also consider how you would manage and sell commercial properties If you own one, consider requesting a Quantity Surveyor’s tax depreciation schedule which will provide you with a list of assets for depreciation purposes to maximise your deductions. When you sell a commercial property, the date of the capital gain is calculated at the date contracts are exchanged, instead of at the property settlement date (which is used for calculating tax). It is advisable to wait until the 1st of July to extend into another year. Goods and Services Tax (GST) is a concern as well A commercial property that is fully tenanted can avoid GST when buying or selling. Commercial tenants, on the other hand, should consider non-cash incentives related to the property’s fit out even if we all know that rental payments on commercial premises are tax deductible The tax outcome may be different when the assets are owned by the tenant and when owned by the landlord. If the landlord supplies fit-outs, the tenants would need to pay tax on that as a non-cash incentive and deduct the benefit. Tenants should also consider the end of the lease to avoid possible trouble down the line. Pre-payment of rent before June 30 won’t likely give the taxpayer an additional deduction because of the tax structure Keep in mind that commercial property rent is often subject to GST for over $75,000 per annum and that owners can claim capital works deductions for construction costs on an ongoing basis. When sold, owners have to lower the cost base by the amount of deductions they claimed throughout the ownership period to avoid double dipping. Documentation is very important This includes rental agreements, a Quantity Surveyor’s tax depreciation schedule, loan or debts held against a property and deduction receipts. There are repairs and maintenance that can be deducted immediately and capital improvements that are a long-term depreciation deduction. PS. Keep all invoices. Talk to your Accountant to understand what you need and map out what you want to do in the coming financial year. For more tips and advice from other industry experts, visit Chan & Naylor website, and subscribe to Chan & Naylor Newsletters.

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