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How property investors can prepare for the new financial year

BMT team — Thu, 06 Jul 2023 05:56:58 +0000

With the arrival of the new financial year, property investors have a prime opportunity to assess their investment strategies and make smart financial decisions. One important aspect to consider is the use of depreciation deductions, which can significantly improve the profitability of an investment. In addition to depreciation, there are several other strategies which can help property investors enhance their investment returns. In this article, we explore how the following can help investors prepare for the new financial year: Understand depreciation and the importance of claiming Engage a quantity surveyor Evaluate property improvement opportunities Review investment loan structures and interest rates Seek expert financial advice 1. Understand depreciation and the importance of claiming Depreciation is the natural wear and tear of a property and the assets within it. The Australian Taxation Office (ATO) allows owners of income-producing properties to claim depreciation as a yearly tax deduction. Depreciation is claimable on a building’s structure and permanent assets, referred to as capital works deductions (Division 43). Depreciation is also claimable on the easily removable or mechanical assets, referred to as plant and equipment depreciation (Division 40). Residential houses generate forty years of capital works deductions which are available from the construction completion date and depreciate at a rate of 2.5 per cent per year unless the property commenced construction before 26 February 1987 and after 18 July 1985, in which case the rate is 4 per cent per year. Plant and equipment assets are depreciated over their effective life, with the rate of depreciation determined by the investor’s chosen method: diminishing value or prime cost. Investors can select the diminishing value method, which allows higher deductions earlier in the asset’s effective life, or the straight-line or prime cost method, which distributes deductions more consistently throughout the asset’s effective life. Changes to depreciation legislation in 2017 mean owners of second-hand properties are no longer eligible to claim deductions for previously used plant and equipment assets if the property is purchased after the 9th of May 2017. This doesn’t affect brand-new properties or newly purchased assets. By claiming depreciation, investors can reduce their taxable income, leading to an improved tax return and improved cash flow. 2. Engage a quantity surveyor Understanding depreciation and the importance of claiming is important, however, it’s also important to engage a qualified quantity surveyor, such as BMT Tax Depreciation. Quantity surveyors are one of the few trained professionals that hold the training required to accurately calculate construction costs. A quantity surveyor will identify all depreciable assets within a property and determine their depreciable value. Their expertise and knowledge of the latest legislation changes will ensure property investors maximise their deductions compliantly. BMT Tax Depreciation conduct physical site inspections, so that all schedules are maximised and fully compliant. Our data from inspections show that 66 per cent of residential investment properties have had some form of renovation or addition that qualify for depreciation. 3. Evaluate property improvement opportunities The new financial year presents an excellent opportunity for investors to assess an investment property for potential improvements. Investors should consider renovations or upgrades which could enhance the property’s value, increase rental income, or improve energy efficiency. These improvements will likely qualify for additional depreciation deductions. It’s important to keep in mind that different improvements will generate varying deductions in both divisions. Investors should consult their quantity surveyor or accountant to determine which improvements will best meet their goal intention, whether this is to increase deductions or to complete surface-level improvements to increase rent. 4. Review investment loan structures and interest rates Investors can take advantage of the new financial year by reviewing their investment loan structures and interest rates. Consulting a mortgage broker or financial adviser to explore opportunities for refinancing or renegotiating lower interest rates can reduce interest expenses and improve cash flow while also increasing the overall return on an investment. Investors should consider whether restructuring an investment loan, switching to a different lender or renegotiating terms can better align them with their investment goals. For instance, an interest only loan with offset accounts could reduce repayments while interest rates are comparatively high. 5. Seek expert financial advice Navigating the complexities of property investment and taxation requires professional guidance. Investors should seek advice from a qualified accountant, financial adviser and quantity surveyor who specialises in property depreciation. These professionals will provide personalised strategies tailored to an investor’s specific situation, ensuring compliance with tax laws while maximising deductions. By taking a proactive approach, staying informed, and leveraging professional expertise, property investors can position themselves to successfully reach investment goals in the new financial year. Property investors wanting to prepare for the new financial year by claiming maximised depreciation should get in touch with BMT on 1300 728 726 or Request a Quote.

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Tax time 2021 and tips for the new financial year

BMT team — Thu, 13 May 2021 01:30:42 +0000

In this article we will explore: Maximise your tax return Understand loan interest and how it can be claimed at tax time Borrowing expenses Repairs, maintenance and capital improvements Don’t forget to claim depreciation at tax time Stay compliant at tax time Prove it all with records Maximise your tax return The Australian Taxation Office (ATO) performed a review of individual tax returns last year and found that an astounding 90 per cent of investment property owners were making mistakes in their tax return. The most common errors were around loan interest, borrowing expenses, repairs and improvements. If you’re a property investor, here are some tips for the new financial year that could help you avoid mistakes and save you thousands next tax time. Understand loan interest and how it can be claimed at tax time If you obtain a loan to purchase an investment property, the interest charged on that loan can be claimed as a tax deduction. However, there are some rules around this: the property must have been rented, or genuinely available for rent, in the income year the deduction is claimed. if the property was used for private purposes at any time throughout the year, the interest will be apportioned accordingly. if the loan was used for more than one purpose, such as to buy the property and a car, the interest must be apportioned into deductible and non-deductible amounts. Don’t forget, you can deduct interest on loans for other purposes including: financing renovations repairing the property purchasing assets, such as air conditioners. You can also pre-pay next financial year’s interest in a lump sum and claim it at tax time this financial year. Tip: Ensure you can provide proof that the property has been genuinely available for rent for vacant periods for your investment property. Borrowing expenses Borrowing expenses are those you directly incurred when taking out your investment property’s loan. If over $100, they can be claimed over the course of five years. If under $100, the full amount can be claimed in the same financial year. Borrowing expenses include: lenders mortgage insurance stamp duty charged on the mortgage title search fees mortgage broker fees valuation fees loan establishment fees costs for preparing and filing mortgage documents. They don’t include: capital costs involved in buying your property such as conveyancing fees, legal fees, title search fees, valuation fees, pest and building inspection fees incurred when purchasing the property and stamp duty the principal amount you borrow for the property loan balances for the property interest expenses (these are claimed separately). For more information on what can and can’t be claimed at tax time as a borrowing expense, visit the ATO website. Repairs, maintenance and capital improvements When it comes to tax deductions, there are differences between repairs, maintenance and capital improvements. Repairs are generally made to fix the wear and tear or damage that occurs to your rental property. An example of a repair is fixing a broken kitchen cupboard. Maintenance generally involves keeping the property in a good condition. If you’re preventing or fixing deterioration of an item, it’s likely to be maintenance. An example of maintenance would be painting an interior wall. Capital improvements occur when the condition or value of an item is improved beyond its original state at the time of purchase. Structural additions and renovations like adding a wall are considered capital works deductions. Adding removable or mechanical items like carpet, hot water systems and stoves are considered plant and equipment. Repairs and maintenance costs may be fully tax deductible in the year they were paid, so long as the expense occurred as a result of your property being genuinely available for rent. Capital improvements must be depreciated or claimed as capital works deductions, or as plant and equipment deductions, over time. If you made an initial capital repair or improvement to a property after purchase but before renting it out, you can’t claim the cost as a standard tax deduction. These costs instead will be classed as capital works and claimed at 2.5 per cent per year over forty years. Don’t forget to claim depreciation at tax time Research shows 80 per cent of property investors fail to take full advantage of property depreciation and miss out on thousands of dollars in their pocket. Depreciation is often missed because it is a non-cash deduction, meaning you do not need to spend any money to claim it. Last financial year, BMT found residential property investors an average first year deduction of almost $9,000. For those who haven’t been claiming depreciation, a BMT Tax Depreciation Schedule can help you claim back missed dollars and amend your tax return for the previous two financial years. Stay compliant at tax time The ATO audited more than 1,500 taxpayers with rental claims in the 2017-18 financial year and issued penalties worth $1.3 million. From 2019, the ATO plan to extend its program of audits and reviews of rental properties and more than double the number of property investor audits to 4,500. With the focus now on ‘over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others and omitted income from accommodation sharing’ it’s wise to ensure you are complying and working within the parameters of ATO legislation. Given depreciation is such a large deduction, it’s important that it’s claimed while maintaining full compliance. When completing a tax depreciation schedule, BMT’s specialist site inspectors complete a physical site inspection. This substantiates any depreciation claim you make. Prove it all with records Maintaining accurate records is crucial. The standard rule is that if you can’t verify it, you can’t claim it. MyBMT provides the perfect tax time solution, making it easy to track property income and expenses throughout the year. MyBMT can be used by property investors, accountants and property managers. MyBMT allows you to track your rental income and property expenses such as loan interest, insurance, rates, body corporate fees and more. You can notify […]

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Smart tax tips for the new financial year

BMT team — Thu, 12 Jul 2018 23:20:23 +0000

For most people, a new financial year means time to prepare an income tax return. They’ll lodge their return, hopefully get a refund (or maybe have to pay some extra tax) and then forget about it until next tax time rolls around. For property investors, it has added meaning. It’s a great time to take stock of how your investment is performing and set some things in place to ensure you’re in an even better position next tax time. Here are five smart tax tips for this new financial year. 1. Visit your Financial Advisor If you haven’t visited your Financial Advisor in a while, make this financial year the time to do so. They’ll be able to assist in reviewing the performance of your investment and advise on whether you should set new goals or adjust your current investment strategy. It’s also a great way to get a holistic view of your finances, which can be hard to do on your own. A good Accountant or Financial Advisor will also ensure you’re claiming everything you’re entitled to as an investor. Speaking of which… 2. Make sure you’re claiming all the deductions you’re entitled to As a property investor you’re entitled to a range of tax deductions, one of which is depreciation. Considering depreciation often sees residential investors get an average of $5,000-10,000 in deductions in the first financial year alone, it’s important to take advantage of these deductions if you want success as an investor. Combined with all the other deductions you’re entitled to for your investment property, such as repairs and property management fees, these deductions really do add up and shouldn’t be overlooked. Visit BMT’s tax depreciation calculator for an estimate of the deductions you may be entitled to. 3. Be smart with renovations Are you planning on renovating your investment property in some form this coming year? If so, you should be smart about it and realise that the assets you choose can maximise future deductions. Selecting which assets to replace during a renovation can make a difference to future deductions. This is because each asset’s rate of depreciation is calculated based on its individual effective life. For example, deductions available in the first full year depreciation claim for carpets, floating timber floors and tiles differ. You can use BMT’s depreciation rate finder to calculate the effective life and depreciation rate for various plant and equipment assets. Furthermore, if you’re planning a renovation this year, you should contact a specialist Quantity Surveyor before starting work. This is important during the removal or demolition of any existing structure or fixture onsite that would have been eligible to claim deductions for depreciation (division 40) or capital works deduction (division 43). These removed and scrapped assets could entitle the owner to additional claims. 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. Keep accurate records and receipts Your Accountant would have told you time and time again to keep receipts of things you need to claim. This advice still stands. One exception to this is if you’re ordering a tax depreciation schedule from BMT. In this case you don’t need receipts for work completed or new assets installed – this is what our site inspections are for. Accurate record keeping is essential for investors – it’s a good idea to jot down conversations you’ve had and agreements you’ve made with your Property Manager or with your tenant if you self-manage your property. This is particularly important for owners of holiday rentals, who need to have accurate records of exactly how many days their property was available for rent in the past year to make legal claims. 5. Consider how you can re-invest your tax return There’s no doubt that the best part of tax time is getting a tidy tax return. While it’s tempting to put that extra cash towards a holiday, a car or even put it into your savings, as an investor you should consider if there are better ways you can use this extra cash. For example, you could choose to reinvest this in shares, put it towards a deposit on a new investment property to grow your portfolio, or use to it renovate or update your existing investment property, which could result in a higher weekly rent and increase the overall value of the property.

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BMT’s top ten tips for tax time

BMT team — Mon, 05 Jun 2017 01:52:12 +0000

With end of financial year fast approaching, it’s time to start getting your income tax return in order. Preparing your annual tax return is a great opportunity to take stock of how your investment property is performing and to make sure you’re claiming everything you’re entitled to. We thought we would share our top ten tips to help you get the most from your investment property this tax time. 1. Claim depreciation to maximise returns – Any investment property that generates income may be eligible for thousands of dollars in depreciation deductions. In fact, most investors can claim an average of$5,000 – $10,000 in deductions in the first full financial year alone. Property depreciation is often missed as it is a non-cash deduction; that is, the investor does not need to spend money in order 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. 2. Order a tax depreciation schedule – 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. 3. Amend previous tax returns – Investors can amend two previous tax returns to recoup any missed deductions. 4. Claim for new and old properties – Investors who are unsure whether they are eligible to claim deductions due the age of their property or the items within it should seek the advice of a specialist Quantity Surveyor*. While newer properties generally do attract higher deductions – due to the higher starting value of a building’s capital works and the items within it – most properties are able to generate some deductions so it’s always worth enquiring about. 5. Use a split report to increase deductions – Do you co-own a property? Then it’s usually more beneficial to order a split report in order to maximise the returns for each owner. To ensure that clients who co-own investment properties are maximising deductions, it is important that Accountants recommend their clients obtain a split report. A split report calculates each owner’s percentage of ownership of the assets within a property before applying depreciation deductions. This usually qualifies more assets for accelerated depreciation and gives the owners greater returns sooner. Accountants also need to be aware that co-ownership will affect the way deductions should be calculated for assets which are eligible for an immediate write-off and accelerated depreciation. 6. Do you only lease your property out for a portion of the year? Then make sure you make a partial year claim for depreciation. 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 on 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. 7. Make use of techniques that maximise deductions early – This includes low value pooling and instant asset write off. A Quantity Surveyor will be able to determine which assets qualify for accelerated depreciation and this will put more money back into your pocket sooner. Read more about how this works. 8. Claim for renovations and improvements – There is a difference between a repair and a capital works improvement and this will affect your claim. The full cost of 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 Quantity Surveyor to ensure this is in your claim correctly. 9. Ensure you use a specialist Quantity Surveyor to prepare your tax depreciation schedule. 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. 10. The BMT guarantee – Be confident when ordering your schedule from BMT Tax Depreciation. BMT offers a guarantee to all clients that if we can’t find double our fee in deductions in the first full financial year, we won’t charge for our service. To order your depreciation schedule and start claiming your depreciation entitlements back, apply online or call 1300 728 726. *Under proposed changes outlined in draft legislation (section 2 of Treasury Laws Amendment Bill 2017), investors who exchange contracts on a second hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on plant and equipment assets. Investors who purchased prior to this date and those who purchase a brand new property will still be able to claim depreciation as they were previously. Investors should note that these changes are not yet law, as the legislation still needs to be passed through the senate for confirmation. BMT Tax Depreciation remain in discussion with government around the new changes and will keep our clients informed on the outcome. To learn more visit www.bmtqs.com.au/budget-2017.

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Five ways to minimise land tax

Chan Naylor Team — Tue, 15 Nov 2016 01:11:16 +0000

Land tax is a state impost and different states have different rules and thresholds. For every property investor it represents a significant cost to owning an investment property, but there are smart ways you could use to legally minimise land tax with strategic tax planning advice from a specialist Accountant. I am not propagating that you should not pay the respective land tax for your property, because as a longer term investment the capital gains should outstrip the costs of holding this investment, including the land tax, however you should always consider the impact of land tax when acquiring your next investment property. Here are five tips on how you can minimise your land tax 1. Purchase the property in the name of the person that may not already have used the respective threshold in a state For example if the husband already has a property in his name, excluding your Principal Place of Residence (PPOR), and has used up the threshold in that state – consider acquiring in the wife’s name to absorb a new threshold. However, be mindful of the tax implications if the property is negatively geared (please seek tax advice), not to mention any asset protection and estate planning risks and tax triggers associated with holding an investment in an individual name and passing it on to the next generation (again, do seek specialist advice). 2. Purchase an apartment that has lower land values that’s below the respective threshold for your state Apartments generally have a lower land component than houses therefore you should check the land component of the investment to determine whether you have reached the respective thresholds. You could own a number of apartment’s before hitting the thresholds in some states. 3. Use a separate entity like a fixed trust or company that entitles you to a separate threshold on each property Some entities in various states are entitled to a separate threshold in their own right allowing you to have multiple thresholds. However before acquiring the investment in these structures seek independent tax advice as tax treatment could be different than acquiring in your own name and each state has different rules for entities. There may also be other tax implications and inflexibility regarding the use of these structures. 4. Consider the timing of sales and purchase on land and the date of assessment for land tax in a particular state For example, if you are selling a property, ensure that you settle prior to the land tax assessment anniversary. If you are selling property just be mindful that you may still be obliged to pay the land tax for the following year if you have not settled before this date. For instance, land tax in New South Wales has a peculiar anniversary date of 31st December – many clients are caught out when selling over this period by signing contracts but not settling until January and find that they have a Land Tax bill to pay even though the property has been sold. 5. ‘Don’t put your eggs in one basket’ – invest in property in several states If all properties were owned in the one state, let’s say New South Wales, you would normally exceed the land tax threshold. However if you spread your investment properties over a number of states then there would be less land tax to pay due to the fact that you have spread the land values over a number of thresholds. Needless to say the first priority is to ensure that the investment property is the right one and ticks all the boxes. Land tax is not the main consideration when buying your investment property but it is one potentially significant impost to holding your property long term and you need to have a land tax strategy of acquiring multiple properties. Always seek advice from a specialist property tax Accountant who understands the complexity of land tax in different states. For more information about Chan & Naylor Property Tax Specialists, or to get in touch with someone to assist you with land tax, please visit www.chan-naylor.com.au Please note our general disclaimer regarding the information contained in this article.

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Tips to improve depreciation deductions this tax time

BMT team — Wed, 27 Jul 2016 02:28:43 +0000

A new financial year is here and with it, property investors will be readying themselves to visit their Accountant to complete their annual income tax return. With the Australian Taxation Office (ATO) encouraging property investors to be vigilant with their claims, it is important to seek expert advice on the deductions available. A large percentage of investors either fail to maximise or mistakenly claim incorrect depreciation deductions. To help investors to improve their deductions at tax time, a tax depreciation schedule should be obtained from a specialist Quantity Surveyor. Below are some tips to ensure you get the most from your depreciation schedule and improve the cash flow earned from an investment property. Request a site inspection so no items are missed A site inspection is perhaps one of the most important processes involved in arranging a tax depreciation schedule for a property. Not all depreciation schedule providers include one, so when you are calling to enquire about getting a report, make sure to ask if the property will be visited. During the site inspection, a depreciation expert will take photographic records of all of the depreciable items found within the property as well as take detailed notes regarding structural items. This allows every item to be accounted for when the schedule is processed and your Quantity Surveyor should list depreciation deductions for each item individually as well as provide a total for each year over the effective life of the asset. Depreciation for structural items (capital works deductions) should be outlined separately in the schedule to make it easier for an Accountant to apply a claim correctly. Claim depreciation no matter how old the property is Owners of older properties often assume they are ineligible to claim depreciation deductions. This is in part due to restrictions the ATO place on claims for the capital works component of the property. Although legislation states that only the owners of properties in which construction commenced after the 15th of September 1987 can claim capital works allowance, these restrictions do not apply to plant and equipment assets. Older properties also have often experienced a renovation or had some of the items contained updated over time. Even if these renovations or improvements have been completed by a previous owner of the property, the new owner may be entitled to claim deductions so long as these changes were made within the ATO legislated dates. Ensure the schedule is up to date to include any recent capital improvements If you already have a depreciation schedule, ensure it is kept up to date if you make any changes to the property. Repairs to fix damage or maintenance to prevent deterioration of items in a property can be claimed as an immediate 100 per cent deduction in the year the expense has occurred. Be careful, however, as if an item has been improved beyond its original state at the time of purchase, this will be considered a capital improvement by the ATO and must be classified as either capital works deductions or plant and equipment and depreciated over time. An investor should contact their specialist Quantity Surveyor before completing any renovations that involve removing existing structures or plant and equipment assets. This is because there may be remaining depreciation deductions available for these items which can be written off. A process called ‘scrapping’ allows investors to write-off any remaining depreciable value for items in the year the item is removed. An updated schedule should always be obtained after completing renovations or improvements to ensure that any new items are included for future depreciation claims. Ask your Accountant to help you apply for a Pay As You Go (PAYG) withholding variation Did you know that you don’t need to wait all year to take advantage of depreciation deductions? A Pay as You Go (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 investors can take advantage of deductions regularly, rather than waiting until the end of financial year for their tax refund. To apply for a PAYG withholding variation, investors should speak with their Accountant. They will provide advice on whether a PAYG withholding variation is suitable for an individual’s circumstances. They will then submit estimated financial information to the ATO. An investor can use a depreciation schedule provided by their Quantity Surveyor to support a PAYG withholding variation application. The additional cash flow that can be claimed from depreciation can reduce the tax an individual needs to have taken out of their pay. Once the PAYG application has been processed, a property investor’s expected tax refund for the financial year will be estimated, allowing their employer to take less tax out of their wages. This allows the additional cash flow from depreciation deductions to be used regularly as needed, which can be quite handy when repairs and maintenance costs arise or to help reduce loan liabilities. Seek advice from a specialist Quantity Surveyor Quantity Surveyors are one of a few select professionals recognised by the ATO under Tax Ruling 97/25 with the expertise necessary to estimate construction costs for depreciation purposes. Calculating deductions correctly without the help of a Quantity Surveyor can be extremely difficult, particularly as depreciation legislation is complex an often changing. Using their affiliations with industry regulating bodies, Quantity Surveyors gain access to the latest information and resources. Check to ensure your Quantity Surveyor is an accredited member of the Australian Institute of Quantity Surveyors (AIQS) and The Royal Institute of Chartered Surveyors (RICS). If you haven’t yet engaged a specialist Quantity Surveyor, it is definitely worth a quick call to see how you can benefit from claiming tax depreciation on your investment property. The cost of a depreciation schedule is 100 per cent tax deductible and investors can also claim back two years’ worth of missed depreciation deductions if they have not been maximising or making a claim.

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A property investor’s guide to preparing for tax time

BMT team — Thu, 23 Jun 2016 04:27:38 +0000

As a property investor, tax time isn’t simply a matter of lodging a return based on your group certificate. It is a more complex process that requires careful records keeping and the help of a qualified Accountant and a specialist Quantity Surveyor. Getting it right isn’t just a matter of making sure you aren’t breaking the law, but also to ensure you are receiving all the deductions and allowances to which you are entitled. Property investment is Australia’s most popular form of wealth creation and to successfully get the yields you desire, you need to ensure accuracy and efficiency at this time of year. Get organised It is far simpler to lodge your tax return if you have been keeping your records up to date since the beginning of the last financial year in July. Keep your receipts organised, not just in a shoebox and maintain a ledger of all your incomings and out goings that relate to your property. Often your Property Manager can help you with this by providing a report on the rental income and any expenses incurred throughout the year. Regardless of whether you plan to do your own tax return or use a professional Accountant, if you’re not conscientious throughout the year, you will almost certainly miss things. Being neglectful can cost you money, or, even worse, put you in danger of being audited if you have lodged an inaccurate return. Ask your Accountant for any checklists you can use to stay organised throughout the year. Understand what you can claim The Australian Taxation Office (ATO) readily makes all the information you need to find out what you can legitimately claim available. However, they aren’t going to hold your hand through the process, so it is up to you to learn the ins and outs of taxation and how it relates to you and your investment. Interest If you draw a loan, you can claim on the interest charges if the finance was for the purchase of: A rental property An asset for the property Repairs on the property Renovations Land where you intend to build a rental property These deductions require careful records as you cannot claim for interest incurred when the property is used for private purposes. If the property is only used to generate an income for a portion of the year, then you can only claim on interest charges for that same portion. Depreciation A property that is used to generate an income is eligible for a depreciation claim. This includes both capital works for the structure of the building itself and plant and equipment assets contained in the property, for example the oven, dishwasher, curtains or blinds, carpets, air conditioners, hot water system and any furnishings that are included when letting it. To claim depreciation, you need a comprehensive tax depreciation schedule that breaks down the property and assets into different categories. This schedule can only be compiled by a Quantity Surveyor. These professionals are skilled construction cost estimators who accurately detail the differing rates at which items depreciate and at which the original building can be claimed. The rate of each individual asset in your property is determined by an effective life set by the ATO. For example, in a residential property the carpet has an effective life of ten years and rangehoods an effective life of twelve years. For the building structure itself, residential property investors can claim capital works deductions at a rate of 2.5 per cent per year for a total of forty years. There are restrictions however dependent on the construction commencement date of the property or any additional works that have been completed during structural renovations of the property. Examples of items which are considered to be capital works include the external bricks, walls, doors, windows, roofs and tiles as well as internal fixed items such as bathtubs, toilets, kitchen bench tops and cabinets. To complete a tax depreciation schedule, a Quantity Surveyor will visit the premises, photograph every asset contained, take detailed measurements and complete the relevant research necessary to contact local councils and other relevant bodies to ensure that depreciation deductions are accurate and maximised. Expenses When you spend money on your investment property, you are entitled to claim these expenses back. Fees such as rates and water levies, strata levies, insurance, repairs and maintenance and travel expenses incurred in relation to your income generating property can all be included in your tax return. It is vital to keep ongoing, accurate records to ensure you have proof of the expense and the time frame in which it occurred. Once again, these claims are only valid for expenses that occurred when the property was being let or used to generate an income. If you used the property as your own private residence for three months of the year, then you can only claim for expenses for the other nine months. It is possible to claim a deduction on expenses paid in advance, such as insurance or interest. This means that you will prepay for the next year, then claim it back in the current tax year. This can be a good tactic to offset a capital loss, however you must be careful to keep clear records to prevent it being claimed on in the next tax year. Stay on track throughout the year Tax time doesn’t have to be stressful. Provided you have maintained accurate records throughout the financial year, it will pass without too much extra work. Your Accountant is a great source of information and they, like Quantity Surveyors are happy to provide advice all year round. To avoid the frantic rush to lodge your tax return by the end of October, obtain a depreciation schedule immediately on settlement of an investment property and if you are planning on completing any major renovation work to a property with an existing schedule, find out what implications this will have on the deductions you can claim. Your Accountant can also help you with […]

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June 2015 end of financial year tax planning and business tips

Chan Naylor Team — Tue, 30 Jun 2015 00:00:24 +0000

We all need to have a closer look at our tax affairs for the end of financial year and start to prepare ourselves for effective planning in the next year. This article is an outline of main points everyone needs to think about to help them with their personal planning now and for the future. Advice for individuals Reasonable work related expenses of up to $300 can be claimed without receipts but notwithstanding, need to be real Bring forward any investment property expenses before the end of the financial year so you can claim them this year Pay any interest on fixed interest loans upfront to give yourself a deduction in this current financial year If your salary next year will decrease then bring forward your deductible expense If your salary is expected to increase next year then try to defer payments until then Be mindful that Capital Gains Tax (CGT) occurs on the contract signature date and not on the settlement date Working from home Producing assessable income at home and using your home as your office may be assessable to claim expenses thereby allowing for a deduction. Look for the following: Any depreciation of office equipment Home office running costs Home office occupancy costs (will impact on main residence tax exemption) Office equipment Office equipment that has shared use between office and non-office must be depreciated in proportion of the business/non-business use. However, if the asset is used exclusively for business, the full deduction available for the item can be claimed If a home business has an aggregated turnover of less than $2 million, an immediate write-off can be applied for assets added after 7:30pm on the 12th of May 2015 as introduced during the May 2015 federal budget Assets installed between the 1st of January 2015 and 7:30pm on the 12th of May 2015 which cost $1,000 or less should be pooled to maximise depreciation deductions. 15% can be claimed in the first year and 30% in the subsequent years. If an asset was purchased between the 31st of December 2013 and the 1st of January 2014, if the asset cost $6,500 or less an instant asset write-off will also apply Home office running costs Running costs (expenses) include, power, gas, phone, cleaning Use a diary (minimum record of four consecutive weeks) to record the amount of time your home office was used and apply the Australian Taxation Office ‘Acceptable Tax Office rates’ at thirty four cents per hour Using your phone for business allows you to claim a deduction for phone rental plus calls, but not installation costs. Again, if the phone is used for a mix of business and personal use then a deduction can be claimed in proportion Home office occupancy costs Home must be a place of business, not a salaried employee working from home. You must have an area that is dedicated to and set aside exclusively for your business and advertise property as such. Make sure that you have adequate insurance in place and review council regulations Expenses may include rent, mortgage interest, land taxes, home insurance premiums and council rates. Again, the same business occupancy percentage can be claimed in relation to the area of your home If claiming occupancy expenses (e.g. mortgage interest depreciation) then you will be expected to account for any capital gain attributable to the business portion of your house when it is time to sell Likewise, the business portion of the home will be subject to CGT although some concessions may apply Small business Claim your deductions. Any expense that your business incurs that is related to making an income can be claimed Don’t forget, small business owners with an aggregated turnover of less than $2 million are eligible for an instant write-off for the purchase of any asset after the 12th of May 2015 up to $20,000 in value Assets installed between the 1st of January 2015 and 7:30pm on the 12th of May 2015 which cost $1,000 or less should be pooled to maximise depreciation deductions. 15% can be claimed in the first year and 30% in the subsequent years. If an asset was purchased between the 31st of December 2013 and the 1st of January 2014, if the asset cost $6,500 or less an instant asset write-off will apply Interest on loans – you can deduct the interest charged on the money that your business borrows including overdrafts and business loans Interest accrued on your business loan but not paid by June 30th can be claimed A business activity funded through any personal loan or credit card of the business owner can also be claimed with the relevant paperwork Look for deduction value in your trading stock by doing a stock take. If your stock value changes by $5,000 you must take this into account when assessing your taxable income for the year. A lower stock value equates to an allowable deduction The different methods available for valuing stock are: – Price you bought it – Current selling value – Replacement value – Stock write down for damaged/obsolete items A deduction can be claimed if your stock values changes less than $5,000 by using one of the above methods Keep records of stock write down reasons Make sure that you do not include GST with the value of your trading stock where you are entitled to a GST credit There are various CGT strategies that can be used: – Crystallise asset losses before 30th June as they may be able to offset any capital gains you make on selling profitable assets. – Delay crystallising any capital gain until the next financial year. Capital gains can be offset against trading losses within the same structure. Note, to assist with your forward planning, the disposal of a CGT asset occurs at the date of your contract Accrued expenses can also be claimed: – Employee end of year bonuses – Director bonuses Identify any bad debts for the year and write […]

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