Australian spending on renovations hit $31 billion last year! The current economic climate has made Australians hesitant to take on additional debt. Rather than purchasing a new home, people are investing in renovation projects on their current properties.  TV shows such as “The Block” and “The Renovators” have become popular and are providing inspiration and ideas for home owners to improve their properties.

Property owners are often unaware of tax deductions available to them. It is possible for Australians to claim thousands back after renovating a property which generates income. Renovations can be expensive, so it makes financial sense to take full advantage of the tax deductions available during the first five years of property ownership. As a building gets older, items wear out – they depreciate. The Australian Taxation Office allows property owners to claim this depreciation as a deduction. Depreciation can be obtained by any property owner who obtains income from their property.

Bradley Beer, Director at BMT Tax Depreciation says, “Property depreciation is commonly missed because it is a non-cash deduction; owners do not have to spend money to claim it.” To ensure property owners are making the most of the tax deductions available, they should consider a pre-renovation depreciation report. Old assets within a property can be worth thousands of dollars. When these old assets (like carpet and hot water systems) are replaced, the owners may be entitled to claim them as a tax deduction. A Quantity Surveyor, who is qualified to calculate values and construction costs, can ensure the owners are not throwing dollars away!

Essentially, if an item is removed or replaced as a result of a renovation, the current value of the item can be written-off as a tax deduction in the year the expense is incurred. A Quantity Surveyor will complete a report prior to a renovation or refurbishment to identify the value of all assets within the property. A second report is then prepared after completion of the renovation, identifying the value of all new assets within the property. The removed assets can be written-off immediately.

How to Maximise Depreciation Deductions

During renovations, when it comes to deciding which new item to install in an investment property, the depreciation potential of the new item should be considered. For example, when spending $2000 on new flooring, owners may consider the depreciation potential of different options:

Figures based on Diminishing Value method of depreciation using current legislation.

When deciding between an air conditioning unit and ducted air conditioning, if a property owner spends $5000 on cooling, these would be the expected deductions:

Figures based on Diminishing Value method of depreciation using current legislation.

Depreciation deductions are also available for the structure of qualified buildings. Any construction (such as a new roof, walls or ceiling) carried out after 18 July 1985 (residential property) and 20 July 1982 (non-residential property) is eligible for the capital works allowance (Division 43). A Quantity Surveyor who specialises in tax depreciation will always take into consideration renovations carried out by previous owners as this becomes an additional tax benefit for the current owner.

Always consult a depreciation expert about an investment property’s depreciation entitlements. Taking full advantage of the available tax benefits on an investment property can improve a property owner’s cash flow each financial year. BMT Tax Depreciation offer obligation free advice about a property’s depreciation potential pre and post renovation. Simply call 1300 728 726 to discuss any property scenario.

Article Provided by BMT Tax Depreciation.

Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is a Director of BMT Tax Depreciation and is available for interview.  Please call (02) 9241 6477 or email b.beer@bmtqs.com.au to get in contact with Bradley.

Investment property owners are often unaware of the tax deductions available through depreciation. Here is a quick review:

• As a building gets older and items within it wear out, they depreciate in value and the Australian Taxation Office (ATO) allows property investors to claim tax back for this depreciation. Depreciation can be claimed by the owner of an income producing property.
• Property investors can generally claim back thousands of dollars in depreciation deductions from their investment property. Depreciation is often missed as it is a non-cash deduction and investors do not have to spend money to claim it.
• Every owner of an investment property, new or old, commercial or residential, should be claiming their maximum depreciation entitlements.
• Investors do not often realise that common property areas and items can be claimed as a depreciation deduction. These common property entitlements can add thousands of dollars to a tax depreciation claim each year, depending on the apartment complex or development.
• Engaging the services of a Quantity Surveyor who specialises in tax depreciation makes investment property ownership easier by maximising tax deductions. This can potentially improve cash flow and reduce the cost of owning an investment. In most cases, depreciation will pay yearly property management fees and more.

What Property Investors should know:

• The property does not have to be new: Most properties, both new and old, will attract some depreciation deductions. A common myth is that older properties will attract no claim. It is worth making an enquiry about any property.
• “The BMT guarantee!” We guarantee that you will receive double our fee worth of deductions in the first full financial year claim or there will be no charge for our services.
• Previous year’s tax returns can be adjusted: if depreciation has not been claimed, Investors can go back and claim deductions from the previous 2-4 financial years. The ATO may have to pay the Investor money back!
• We work with your accountant: BMT Tax Depreciation will work alongside the Investor’s accountant to compliment their service and produce a report that is easily interpreted.
• We make the process easy: Simply call BMT Tax Depreciation to proceed with a report, provide a few details and we will do the rest!

We can ensure Investors’ depreciation deductions are maximised and put more money back in their pockets!

Article Provided by BMT Tax Depreciation.

Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is a Director of BMT Tax Depreciation.  Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia wide service.

When purchasing an investment property how long should the owner wait before obtaining a property depreciation report?

Getting a report immediately following purchase allows owners to maximise the depreciation benefit of their new investment property. This is true even if the property has only been owned for the last few weeks of the financial year.

Investors commonly defer obtaining a tax depreciation report until they have owned the property for a full financial year. The common belief is if a property has been rented for only a few months, it is not worth getting a depreciation report. However, there are ways that BMT Tax Depreciation can maximise the partial year deductions, making a report well worthwhile!

Immediate write-off is one tool BMT Tax Depreciation use to make partial year claims beneficial to property owners. Any item added to the property costing less than $300 can be 100% written-off within the first year, even if the property is purchased a few weeks before the end of the financial year.

Low-value pooling is another tool that BMT Tax Depreciation use. It applies to items in an investment property that cost, or are valued at, less than $1,000. These pooled items are able to be claimed as a full financial year, even though the first year will always be a partial year. Pooled items are written-off at the higher rate of 18.75% in the first financial year. From the second year onwards the remaining balance of the item can be claimed at a rate of 37.5%.

When a property is rented in the middle of a financial year the BMT Tax Depreciation Report will include a partial year claim, which makes claiming the deductions for accountants. To show how the partial year portion of a BMT Tax Depreciation report can maximise a property owner’s deductions we will look at a new house purchased for $550,000. The house was rented starting June 2nd. Here is a summary of the deductions available to the owners after renting the property for only 29 days of the financial year.

Including the capital works allowance of the property and all plant and equipment, the owners claimed back $4,333 for the first financial year. Even though the property was only rented for 29 days, BMT was able to find substantial deductions for the property owner. In the tax depreciation schedule, the partial year claim is listed in a separate column, making the process simple for accountants.

By using the immediate write-off allowance BMT was able to find $1,150 for this property owner. All items in the property that cost less than $300 are fully deductible in the first financial year. If not claimed in the first year, the remaining value of the items will be depreciated slowly using their basic depreciation rates over subsequent years.
From pooled items alone, the owner was able to claim back $2,031 after renting the property for just 29 days. The pooled items attracted a depreciation rate of 18.75% for this first financial year and in subsequent years will be depreciated at a rate of 37.5%. Through pooling BMT is able to maximise the deductions for owners who have only owned a property for a part of the financial year.

This example shows that even when renting out a property for a few weeks of the financial year it is worth obtaining a tax depreciation report. By utilising the tools available through the Australian Tax Office, BMT Tax Depreciation is able to truly maximise depreciation claims for partial year reports. Despite the time of year a property is purchased, owners should seek the services of a specialist Quantity Surveyor like BMT to maximise the depreciation benefits of the property.

Article Provided by BMT Tax Depreciation.

Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is a Director of BMT Tax Depreciation.

Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia wide service.

Determining depreciation deductions on an investment property with multiple owners can create a complex situation regarding taxes. A BMT Tax Depreciation report makes life easier for accountants by splitting up the depreciation deductions, regardless of how many owners have a share in a property.

A survey compiled by Mortgage Choice found 71% of respondents indicated they would be purchasing their investment property with a partner, sibling, parent or friend. When multiple people buy a property they become either ‘joint tenants’ or ‘tenants in common.’ Ownership structures can influence how depreciation deductions are calculated. There are many implications in regards to maximising deductions and BMT Tax Depreciation will ensure any ownership situation is catered for.

Pooling for Multiple Owners

Legislation states that some assets within a standard investment property can be grouped together and written off at a higher rate. To qualify for these groups the asset’s value must fall below $300 or $1,000. Assets which fall under $300 are able to be written off immediately (this option is called the ‘immediate write-off’). Assets which fall under $1,000 are entitled to an accelerated depreciation rate of 18.75% in the year of acquisition and 37.5% per year there after (this option is called ‘low-value pooling’). Both options will be affected depending on the ownership structure of the property.

For example, in a 50:50 ownership situation, items under $600 can be written off immediately and items that are under $2,000 can qualify for the ‘low-value’ pool.

Example One

Three sisters decide to purchase an investment property together with a 1/3 share each. The property has a split system air conditioner at a value of $2,600. Considering the 1/3 share, the individual value of the split system for each sister is 33.3% X $2,600 = $867. This means that instead of depreciating at 20% under a normal diminishing method each year, it will qualify for the higher rate pool of 37.5% each year following the year of acquisition.

The table below shows how this extra deduction for the air conditioner will add up for the first 5 years.

It equates to a difference of $176 per sister.

Example Two

John and Mary purchase an investment property shortly after getting married. They purchase as joint tenants and their accountant apportions 50% of the total deductions to each of them. In this scenario, the ‘immediate write-off’ legislation affects their return.

For the ‘immediate write-off’, individual assets with a value of less than $300 can be written off as a 100% deduction in the year of acquisition. Their investment property has a mechanical door closer at $95 and ceiling fan at $290. Both of these assets will be written off as 100% deductions within the first year. However, they also have a room air conditioner with a value of $580. As they own a 50% share each, according to the Australian Taxation Office (ATO), they each own half the value of the room air conditioner, i.e. $290 each. The 50:50 split means that they can both individually claim their share of the air conditioner as a 100% write-off with their share of the asset being under $300 in value.

BMT Tax Depreciation Case Study

Two friends purchase a property with a 50:50 share. This example highlights the difference between simply halving the deductions and ensuring legislation is applied to each individual’s interest considering the 50:50 split.

After listing ten fixtures normally found in a residential property with a total value of $27,462, BMT Tax Depreciation conducted an assessment on the deductions.

The situation is identical except for the fact that the 50:50 split has been applied to each individual’s share, which has allowed for some accelerated depreciation. An additional $2,099 in tax deductions was found. For more information contact our office to speak with one of our qualified Tax Depreciation consultants. We will also be very happy to speak to your property management company.

BMT Tax Depreciation are leading the way with this new approach to preparing our depreciation reports and can take into account any split purchase percentages, including 50:50, 70:30 or even 1:99.

Article Provided by BMT Tax Depreciation.

Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is a Director of BMT Tax Depreciation. Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia wide service

How is Low-Value Pooling used for Property Depreciation Reports?

Low-value pooling is essentially a method of depreciating plant items within an income property at a higher rate to maximise depreciation deductions. The following categories of depreciating assets can be allocated into a low value pool and claimed at a higher tax rate to maximise deductions:

• Low-cost assets – A low-cost asset is a depreciable asset that has an opening value of less than $1,000 in the year of acquisition. Assets which would be considered low costs assets include new removable items such as blinds or cook tops costing less than $1,000.
• Low-value assets – A low-value asset is a depreciable asset that has a written down value of less than $1,000. That is, the opening value of an asset is greater than $1,000 in the year of acquisition, but the value remaining after depreciating over time is now less than $1,000. Assets meeting this classification are placed in an itemised pool. An example would include a hot water system initially costing $1,300. In the second financial year after installation the asset would have depreciated to a value lower than $1,000, which would make it eligible to be placed in the low-value pool.

Property investors who pool items are able to claim them at 18.75% in the first financial year. From the second year onwards the remaining balance of the item can be claimed at a rate of 37.5%. This rule allows for an increased depreciation deduction on any asset in the property which costs less than $1,000.

Assets which form part of a group when their total cost exceeds $1,000 can cause confusion. For example, if a house has a set of six blinds with the cost around $3,000, it would seem that the total cost would not qualify for the extra depreciation available in the low-cost pool. However, BMT Tax Depreciation will depreciate these blinds at the higher rate as they qualify as individual items. Dividing $3,000 into six makes each blind worth around $500. Therefore the blinds can be included in the low-value pool.

When depreciating items using low-value pooling there are some restrictions. It is imperative than property investors are aware of the following:

• Assets which cost $300 or less can be claimed as an immediate deduction and therefore are not included in the low-value pool.

• If the property was occupied by the owner as their primary place of residence (PPR) prior to being rented, the pooling of assets can be held off until the property is producing income.

If an owner is planning on renovating their investment property soon after purchase, it is encouraged they let BMT Tax Depreciation know in order to delay pooling until after renovations are complete to ensure the maximum depreciation deductions are obtained.

Pooling for Multiple Owners
Pooling for multiple owners will be determined by the ownership structure of the property. For example in a 50:50 ownership situation, items under $600 can be written off immediately and items that are under $2,000 can qualify for the 37.5% pool. According to the ATO, each owner is entitled to half the value of an asset, therefore a room air conditioner with a value of $580 can be written off immediately i.e. $290 each.

The 50:50 split means that they can both individually claim their share of the air conditioner as a 100% write-off with their share of the asset being under $300 in value.

BMT Tax Depreciation use all of the tools available from the ATO, including pooling, to maximise property investors’ deductions from depreciation.

Article Provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is a Director of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia wide service.