Monthly Newsletter

November 2018

Frequently asked depreciation questions

What is depreciation?

As a building gets older and items within it wear out, they depreciate in value. The Australian Taxation Office (ATO) allows property investors to claim a deduction relating to the building and fixtures it contains. Depreciation can be claimed by any owner of an income producing property. This deduction essentially reduces the investment property owner’s taxable income.

What is a depreciation schedule?

A depreciation schedule is a comprehensive report that outlines the depreciation deductions claimable by investment property owners on the property’s building structure and its fixtures and fittings within it. A depreciation schedule, prepared by a specialist Quantity Surveying firm, such as BMT Tax Depreciation is one of the best ways that you can maximise the cash return from your investment property each financial year.

If a residential property was built before 1987 is it too old?

No, investment properties do not have to be new. Both new and old properties will attract some depreciation deductions. It is a common myth that older properties will attract no claim.Previous year’s tax returns can also be adjusted. If a property owner has not maximised their depreciation deductions, the ATO allows investors to adjust the previous two financial years tax returns.

How does BMT calculate a building’s age?

The age of the building can be determined by obtaining council documents with dates pertaining to the original application approval date or the occupancy certificate date and final inspection date. Your BMT Quantity Surveyor will conduct the relevant searches to accurately determine the age of a building. This includes historical council searches regarding lodged development applications, as well as occupancy certificates and certified final inspections.

What is the difference between plant and equipment and capital works?

Plant and equipment (division 40) assets are items that can be ‘easily’ removed from the property, as opposed to items that are permanently fixed to the structure of the building. Plant and equipment assets also include electronically or mechanically operated items,even though they may be fixed to the structure of the building.

Plant and equipment assets include, but are not limited to:

 

·          Carpets

·          Hot water systems

·          Ovens

·          Blinds

·          Range hoods

·          Cook tops

·          Door closers

·          Garage door motors

·          Freestanding furniture

·          Air conditioning systems


Capital works (division 43) is based on the historical construction costs of the building and includes such items as bricks, mortar, walls, flooring and wiring.

Why does the depreciation schedule last forty years?

The ATO has determined that any building eligible to claim the building write-off allowance has a maximum effective life of forty years from the date construction was completed. The owner can generally claim up to forty years depreciation on a brand new building, whereas the balance of the forty year period is claimable on an older property.

Can the building owner claim renovations that were completed by the previous owner?

Yes. Anything in the property that is part of a previous renovation will be estimated by our Quantity Surveyors and deductions calculated accordingly. This includes items which may not be so obvious, for example, new plumbing, waterproofing and electrical wiring. For capital works improvements to qualify for the division 43 building write-off, they must have commenced construction within the qualifying dates.

How long will it take to get my schedule?

Once we have collected all of the details we need, it usually takes between five - seven days for our team to prepare your property’s BMT Tax Depreciation Schedule.

Do you inspect properties?

BMT inspects properties that a tax depreciation schedule is to be completed on. This ensures that we can identify all assets and maximise the depreciation deductions available. This also ensures our schedules are fully compliant with the guidelines set out by the Australian Institute of Quantity Surveyors (AIQS),the Royal Institute of Chartered Surveyors (RICS) and that are required by the ATO.

Doesn’t my accountant take care of this?

BMT works with your Accountant to ensure that your depreciation claim is maximised each financial year for your investment property. The ATO states that Quantity Surveyors are one of the only recognised professions with the appropriate construction costing skills to estimate construction costs for depreciation purposes.

Who is qualified to estimate construction costs for depreciation purposes?

Quantity Surveyors are qualified under the tax legislation TR 97/25 to estimate construction costs for depreciation purposes and are one of a few select professionals who specialise in providing depreciation schedules. Ensure a depreciation specialist like BMT is used to prepare a depreciation schedule.

Why is BMT Tax Depreciation my best choice for my depreciation schedule needs?

  • BMT use our own staff Australia-wide,many firms use contractors. If an audit takes place and the ATO questions anything in the depreciation schedule, you will have peace of mind knowing BMT’s trained staff will be answering any queries
  •  BMT provide a fee guarantee: if we can’t find double our fee worth of deductions in the first full financial year, we don’t charge for our services
  • BMT have one fee across the whole of Australia - we don’t charge extra for regional areas and travel costs
  • BMT’s Tax Depreciation Schedule is structured to allow you to recoup missed deductions for up to two years if you have not been maximising your deductions
  • If you make additions to the property after you receive your depreciation schedule, BMT can update your depreciation schedule free of charge for the first addition
  • BMT work with your Accountant and Property Manager to simplify the process for you
  • BMT provide ongoing support.  If you have questions, please contact one of our expert staff on 1300 728 726 or visit our website www.bmtqs.com.au

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.

Scammers impersonating tax agents

The ATO has received increasing reports of a new take on the ‘faketax debt’ scam, whereby scammers are now impersonating registered tax agents to lend legitimacy to their phone call.

The fraudsters do this by coercing the victim into revealing their agent’s name and then initiating a three-way phone conversation between the scammer, the victim, and another scammer impersonating the victim’s registered tax agent or someone from the agent’s practice.

As the phone conversations with the scammers appeared legitimate and the victims trusted the advice of the scammer ‘tax agent’, victims have been falling for this new approach.

In a recent example, a victim withdrew thousands of dollars in cash and deposited it into a Bitcoin ATM, fearing that police had a warrant out for their arrest.

The ATO is reminding taxpayers that they will never:

  • demand immediate payments;
  • threaten them with arrest; or
  • request payment by unusual means, such as iTunes vouchers, store gift cards or Bitcoin crypto-currency.

Taxpayers are advised that if they are suspicious about a phone call from someone claiming to be the ATO, then they should disconnect and call the ATO or their tax agent to confirm the status of their tax affairs and verify the call.

Ban on electronic sales suppression tools

From 4 October 2018, the Government has banned activities involving electronic sales suppression tools (‘ESSTs’) that relate to people or businesses that have Australian tax obligations.  

The production, supply, possession or use of an ESST (or knowingly assisting others to do so) may attract criminal and administrative penalties.

ESSTs can come in different forms and are constantly evolving, some examples include:

  • An external device connected to a point of sale (‘POS’) system.
  • Additional software installed into otherwise-compliant software.
  • A feature or modification that is a part of a POS system or software.

An ESST may allow income to be misrepresented and under-reported by:

  • deleting transactions from electronic record-keeping systems;
  • changing transactions to reduce the amount of a sale;
  • misrepresenting sales records (e.g., by allowing GST taxable sales to be re-categorised as GST non-taxable sales); or
  • falsifying POS records.

Transitional arrangements are in place for six months starting from 4 October 2018 to 3 April 2019 for possessing an ESST.

Taxpayers may avoid committing an offence for possessing an ESST if they:

  • acquired it before 7:30pm 9 May 2017; and
  • advise the ATO that they possess the tool.

Importantly, the transitional provisions do not apply to the manufacture, development, publication, supply or use of an ESST.

Depending on the offence and severity of the crime, taxpayers can face financial penalties of up to 5,000 penalty units, which currently equates to over $1 million.

Expansion of the TPRS

The Taxable Payments Reporting System (‘TPRS’) has been expanded to the cleaning and courier services industries from 1 July 2018.

Businesses that have an ABN and make any payments to contractors for cleaning or courier services provided on behalf of the business must lodge a Taxable Payments Annual Report (‘TPAR’) each income year.

The first TPAR for payments made to contractors from 1 July 2018 to 30 June 2019 will be dueby 28 August 2019.

Where cleaning or courier services are only part of the services provided by the business, they will need to work out what percentage of the payments they receive are for these services each income year to determine if aTPAR is required to be lodged.

Specifically, if the total payments the business receives for the relevant services are:

  • 10% or more of their GST turnover – a TPAR must be lodged.
  • Less than 10% of their GST turnover – a TPAR is not required to be lodged, but the business can choose to lodge one.

Proposed expansion of STP to smaller employers

Single Touch Payroll (‘STP’) commenced on 1 July 2018 for approximately 73,000 employers who have 20 or more employees.

There is currently legislation before Parliament to expand STP to all employers from 1 July 2019 and it is estimated that there will be more than 700,000 employers who will enter STP as a result.

Even though the proposed expansion is not yet law, the ATO recommends that smaller employers consider voluntarily opting-in to STP early.

The ATO acknowledges there is a large number of very small employers who have less than five employees (‘micro-employers’) who do not currently usea payroll product and has indicated that they are not looking to force them to take up a product to do STP.

Efforts are being made to work with industry to look at some alternate reporting mechanisms.

It is being reported that software developers, and even some of the larger banks, have shown an interest in developing some kind of product thatwould enable micro-employers to provide the necessary data to comply with STP at a low cost.

Employers who are in an area that has internet issues or challenges are reminded that there are potential exemptions available under STP.

The ATO is currently consulting with focus groups to look at flexible options to transition micro-employers to STP over the next couple of years.

Assuming the relevant legislation passes, the ATO does not realistically expect that everyone will start STP from 1 July 2019 and has indicated that it will be flexible with the commencement date, including the provision of deferrals to help stagger the uptake.

Fast-tracking tax cuts for small and medium businesses

The Government has fast-tracked the already legislated tax cuts to small and medium businesses by bringing them forward five years.

Companies with an aggregated turnover of less than $50 million will have a tax rate of 25% in the 2022 income year (instead of the 2027 income year based on the previously legislated timeline).

Similarly, the increase in the tax discount to 16% for unincorporated entities will apply from the 2022 income year, rather than the 2027 income year.

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