With tax time fast approaching, here are five tax time tips to ensure you maximise the deductions for your investment property.
1. Understand what deductions you’re entitled to
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.
For example, 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 commonly missed. This is because it’s a
non-cash deduction and the owner doesn’t need to spend any money to be eligible to claim it. Research suggests 80 per cent of property investors are missing out on the depreciation deductions they’re entitled to.
During the 2017-2018 financial year BMT Tax Depreciation found their clients an average of $8,212 in depreciation deductions in the first year alone for residential properties. These deductions shouldn’t be overlooked and could inject healthy cash flow back into your investment.
A BMT Tax Depreciation Schedule outlines all the deductions you can claim for your property. The schedule lasts for forty years and the fee is 100 per cent tax deductible.
2. Don’t wait until the next financial year to make a claim
If your property has only been income producing fora short time, you will still be able to make a partial-year claim.
The Australian Taxation Office (ATO) allows investors to make a depreciation claim based on the amount of days a property was available for lease. This rule applies if you’ve only recently purchased an investment property, if the property was only listed as available for part of the year or if is a holiday home only rented for part of the year.
3. If you’ve made updates to your property, you may need to amend your 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 there is a difference between repair and maintenance and a capital works improvement, as this will affect your claim. The cost of any repairs or maintenance can be claimed in full in the same financial year work is completed. However, a capital improvement occurs when you improve the condition of a structural item or asset beyond its original state at the time of purchase. Such improvements are capital in nature and must be depreciated over time.
An updated tax depreciation schedule may be required after a renovation to capture all newly installed plant and equipment assets or capital works expenditure and in some circumstances, items removed during a renovation can be scrapped and any remaining deductions written off.
5. Discuss tax depreciation deductions with your Accountant
An Accountant should be recommending you claim depreciation for your investment property. They can organise a schedule on your behalf or refer you to a Quantity Surveyor, but they can’t 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 under Tax Ruling 97/25 as having 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. It’s not too late to claim on past years’ deductions
Investment property owners often enquire about a property they haven’t claimed depreciation for they have owned and rented for a number of years.
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.
To start claiming or maximising your depreciation deductions with BMT, Request a Quote now or call an speak to a depreciation expert on 1300 726 728.
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia wide service.
The benchmark interest rate for the FBT year commencing on 1 April 2019 is 5.37% per annum (up from the rate of 5.20% that applied for the previous FBT year).
This rate is used to calculate the taxable value of:
On 1 April 2019 an employer lends an employee $50,000 for five years at an interest rate of 5% p.a. with interest charged and paid six-monthly, and no principal being repaid until the end of the loan.
The actual interest payable by the employee for the current year is $2,500 (i.e., $50,000 x 5%).
However, the notional interest, with a 5.37% benchmark rate, is $2,685, so the taxable value is $185(i.e., $2,685 – $2,500).
The ATO has updated its list of 'What attracts our attention', with six items that specifically relate to fringe benefits tax('FBT'), as follows:
– significantly discounting market valuations;
– using non-commercial parking rates; or
– parking rates not being supported by adequate evidence.
The ATO is warning that scammers have adopted ‘Robocall’ technology to target taxpayers across the country.
Assistant Commissioner Gavin Siebert said: “Scammers are sending pre-recorded messages in record numbers and are manipulating caller identification so that your phone displays a legitimate ATO phone number despite coming from an overseas scammer”.
“If the scammers do make contact, they will request payment of a tax debt – usually through unusual methods like bitcoin, gift cards and vouchers. Legitimate ways to pay your tax debt are listed on our website. The scammers will threaten you with immediate arrest, attempt to keep you on the line until payment is made and may become rude or aggressive.”
The technique of displaying misleading phone numbers is known as “spoofing” and is commonly used by scammers in an attempt to make their interactions with taxpayers appear legitimate.
The ATO has reminded businesses that provide road freight, information technology ('IT'), security, investigation, or surveillance services that they need to lodge a Taxable payments annual report ('TPAR') each year to tell the ATO about the payments they make to contractors who use an Australian business number ('ABN') (even if these services are only part of their business activities).
Such clients' first TPAR will be due by 28 August 2020 for payments made from 1 July 2019 to 30 June 2020.
Editor: We can help with the lodgement of this report,but affected clients will need to keep records of the payments made to contractors. The required information,including the contractor's ABN, name, address, and total amounts paid during the financial year (including GST) will normally be contained in the invoices received from the contractors.
The Government handed down the 2019/20 Federal Budget on Tuesday 2 April 2019.
Some of the important proposals include:
– Increasing the instant asset write-off threshold from $25,000 to $30,000.
– Making the instant asset write-off available to medium sized businesses (with aggregated annual turnover of $10million or more, but less than $50 million).
Editor: The legislation to make the above changes to the instant asset write-off has already been passed and received Royal Assent.
– make voluntary superannuation contributions(both concessional and non-concessional) without meeting the work test from 1 July 2020; and
– make up to three years of non-concessional contributions under the bring-forward rule (without satisfying the work test).
The Federal Election has been called for Saturday 18 May 2019, and the Governor-General has 'prorogued' the Parliament from 11 April 2019 until 18 May 2019, and dissolved the House of Representatives.
The election will also be for half the Senate.
As a result, all outstanding Bills have also lapsed (so any measures not yet passed will need to be reintroduced in new Bills after the election if they are to become law).
A depreciation schedule prepared by BMT Tax Depreciation helps to maximise the cash return from your investment property each financial year.
To ensure that you claim the maximum depreciation deductions, a BMT Tax Depreciation Schedule lasts for the life of the property, or forty years as specified by the Australian Taxation Office(ATO).
A BMT Tax Depreciation Schedule also provides you with a breakdown of the deductions for the two depreciable elements found in the property as explained below:
Capital works deductions (division 43)
Known as building write-off, this refers to the tax deductions available for the structural elements of a building. Examples include the foundations, walls, roof, doors, windows, sinks and tiles. In a residential property built after 15 September 1987, capital works deductions can be claimed at 2.5 per cent per year for a maximum of forty years. For commercial and other types of non-residential properties, the capital works deductions vary based on the property type, the building’s use and date of construction commencement.
Plant and equipment (division 40)
Plant and equipment assets are considered to be easily removable or mechanical in nature. These assets are identified through ATO legislation as assets which have a limited effective life and can reasonably be expected to decline in value or depreciate over the time they’re used. Depreciation for plant and equipment is calculated based on an individual effective life as allocated by the tax commissioner and updated regularly through tax rulings.
Depreciation benefits vary depending on the type of building, its age, its use and its fit out. Owners of commercial, industrial and residential investment properties can all claim depreciation. You can choose between the diminishing value or prime cost methods of depreciation when claiming depreciation for plant and equipment assets. An Accountant can provide advice on the method which best suits your individual investment strategy.
Ensuring that your depreciation claim is maximised for any building requires a combination of construction costing skills and thorough knowledge of current tax depreciation and capital works deduction legislation.For this reason, it is recommended that you speak with a specialist Quantity Surveyor before you lodge your tax return.
Completing capital allowance and tax depreciation schedules for income producing properties is a specialist field of quantity surveying and it is one in which BMT Tax Depreciation has many years of experience.
As members of the Australian Institute of Quantity Surveyors (AIQS), the Royal Institute of Chartered Surveyors, The Property Investment Professionals of Australia, the Auctioneers& Valuers Association and the Urban Development Institute of Australia as well as being registered Tax Agents with the Tax Practitioners Board (TPB), BMT remain up to date with the latest research and information to ensure deductions are maximised for all types of properties including residential, commercial, industrial, manufacturing, agricultural and more.
A BMT Tax Depreciation Schedule includes:
· A summary for both methods of depreciation to help you decide which method is best for your investment strategy
· A detailed forty year forecast, illustrating the deductions available using both the prime cost and diminishing value methods
· A glossary of terms to help you understand the terminology used
· The backing of a BMT guarantee: if we can’t find double our fee in deductions in the first full financial year claim there will be no charge for our services
· Low-value and low-cost pooling legislation is used to accelerate deductions under the diminishing value method for all plant and equipment assets
· Your schedule is pro-rata calculated for the first year of ownership to ensure you can claim even partial year deductions and don’t miss out on returns
· Your schedule includes a breakdown of common areas and common assets which can be depreciated in applicable property types, e.g. apartments, units and townhouses
· Split reports are available if your property is co-owned – discover how split reports maximise deductions
· The schedule can be provided in print, MS Excel and CSV (residential only) – just let us know what format you would prefer when you order your schedule
How do I organise a schedule?
Engaging BMT Tax Depreciation to complete a capital allowance and tax depreciation schedule for your investment property couldn’t be easier.
· We will collect property details, then contact your Property Manager or tenant to complete a property inspection
· Your schedule will be available within 5-7 days of all information being gathered. BMT Tax Depreciation can even forward your schedule to your Accountant directly,saving you time
· Alternatively,you can register and request a tax depreciation schedule via, My BMT. Our handy online portal allows you to view, update and download schedules, follow the process of your schedule’s completion, to upload relevant files, photos and receipts and to share your schedule with members of your investment team
BMT Tax Depreciation also provide a free, easy to use tax depreciation calculator, which can provide you with an estimate of available deductions for any property you are considering purchasing.
Alternatively, you can contact one of our expert staff on 1300 728 726 for a free estimate of available deductions.
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) isthe Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.
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