Top Depreciation Claims for Property Owners in Australia

There are various ways in which landlords can save money when paying their annual taxes. But in most cases, they end up paying hefty taxes due to a lack of information about the eligibility of filing depreciation claims.

Here in this post, you can see the top tax deductions that you can claim for your property:

1. Installed appliances depreciation

If you have installed appliances at your home, such as dishwashers, air conditioners, washing machines, etc., the owners can consider claiming deductions based on the effective life of the appliances.

2. Maintenance and wear and tear

If you have spent a sum on the upkeep of your property, you can claim depreciation for the building based on the amount invested. May it be a broken roof struck by a storm or a broken window due to a tree fall, all can be put up for a property depreciation claim.  

3. Strata title

People who are in possession of multi-storey apartments and subdivisions, stand eligible for strata title. Holding a strata title makes the owners eligible for claiming the amount that they paid as corporate body charges. The body corporate fee is levied on owners who own apartments, multi-story buildings, duplexes, townhouses, etc. Also, the owners can put up a depreciation petition for maintenance and garden development in such cases by including them as strata fees.

4. Property loan interest charges

If you have required a property loan when buying your property, the interest amount levied on the same can be filed for tax depreciation. The principal amount cannot be claimed, but the interest amount for the full loan is eligible for Deppro depreciation.

5. Building depreciation

If you have made any renovations to your building, you can claim the same on your property. Buildings that have been built on or before the 16th of September 1987 do not stand eligible for depreciation claims. However, buildings that have been constructed after that date are eligible for a depreciation claim. All you need to do is hire a professional who will make use of investment property calculator to come up with the best cost-cutting solutions.

6. Cost of advertisement for a rental property

If you are planning to rent out your property using any of the advertising methods such as brochures, print media, signboards, etc., then we have good news for you. Now you can claim the advertising cost that you have invested to rent your property to a tenant.

Conclusion:

To gain a better understanding of the depreciation rules, you can consider seeking advice from property depreciation consultants.

Top Depreciation Claims for Property Owners in Australia

There are various ways in which landlords can save money when paying their annual taxes. But in most cases, they end up paying hefty taxes due to a lack of information about the eligibility of filing depreciation claims. Hiring experts can help them go a long way in saving taxes leading them in a win-win situation.

Here in this post, you will get to read a list of the top tax deductions that you can claim for your property:

1. Installed appliances depreciation

If you have installed appliances at your home, such as dishwashers, air conditioners, washing machines, etc., the owners can consider claiming deductions based on the effective life of the appliances.

2. Maintenance and wear and tear

If you have spent a sum on the upkeep of your property that occurs due to wear and tear, you can claim depreciation for the building based on the amount invested. May it be a broken roof struck by a storm or a broken window due to a tree fall, all can be put up for a property depreciation claim.  

3. Strata title

People who are in possession of multi-storey apartments and subdivisions stand eligible for strata title. Holding a strata title makes the owners eligible for claiming the amount that they paid as corporate body charges. The body corporate fee is levied on owners who own apartments, multi-story buildings, duplexes, townhouses, etc. Also, the owners can put up a depreciation petition for maintenance and garden development in such cases by including them as strata fees.

4. Property loan interest charges

If you have taken a property loan while buying your property, the interest amount levied on the same can be filed for tax depreciation. The principal amount cannot be claimed, but the interest amount for the full loan size can be put for Deppro depreciation.

5. Building depreciation

If you have made any renovations to your building, you can claim the same on your property. Buildings that have been built on or before 16th September 1987 do not stand eligible for depreciation claims. On the contrary, buildings that have been constructed after that date can be put for a depreciation claim. All you need to do is to hire a professional who will make use of investment property calculator to come up with the best cost-cutting solutions.

6. Cost of advertisement for a rental property

If you are planning to rent out your property using any of the advertising methods such as brochures, print media, signboards, etc., then there is some good news for you. Now you can claim for the advertising cost that you have invested to rent your property to a tenant.

Conclusion:

There are various other depreciation claims that you can make apart from the ones mentioned above. To gain a better understanding of such claims, you can consider seeking advice from property depreciation consultants.

Planning to demolish your existing property to construct an investment property? Consider these factors

Depreciation can never be a sole factor for an investor to construct a new investment property. However, it does impact the cash flow of your property. Not to mention, an expert quantity surveyor will help you discover depreciating assets for tax purposes. Investors generally demolish their family home to construct a duplex and live in one part and rent out the other section. It may cost a little more to construct a duplex than a solo freestanding house. But it is more economical than constructing two single freestanding houses.

Here are some factors that you should not overlook:

What is a duplex?

It is a residential home that has got two units under the same roof. The two units however share a common party wall that separates the building into two different units. Each unit is considered as a separate home with its own facilities, entrance, and yard. With a duplex, there is the advantage of a greater asset portfolio and higher equity. It can help in funding future projects and lets you accomplish your property goals much earlier.

Steps in constructing an investment property

There are various steps that need to be followed when constructing an investment property. You must ensure that you have acquired experts. The house that you seek to demolish should be a primary place of residence. It should not be a family home. You need to demolish it as the duplex must be constructed on vacant land. The investor must have a scrapping report which will let the investor claim depreciation on investment property. This report will help you to save thousands of dollars by way of claiming an instant tax deduction for scrap value being decided by an expert quantity surveyor.

Development application:

An expert architect will help in designing the home for the property investor. They should also help the investor through the essential development application process with the council. In case the investor plans to construct an off the plan house, a Complying Development Certificate can be utilized instead of a DA. This will help to streamline the procedure and reduce the lag time. You must evaluate depreciation on residential rental property in a bid to make an effective depreciation claim.

Occupancy certificate:

During the process of construction, you must establish contact with the builder so that you can stay updated on the construction progress. You must ensure that the construction team are experts who have a license and previous experience. It will ensure a top-quality final product. After the project is over, it is necessary to get hold of an occupation certificate. The certificate will help in authorizing the occupation and use of a new unit. It is significant because it will ensure that the property becomes habitable.

Conclusion:

Often financial institutions or banks may make it mandatory to seek the services of quantity surveyors. An expert quantity surveyor from Deppro Victoria will also prepare the property tax depreciation schedule for the property investors. The cost reports are required by banks to understand the development expenditure.

How Multiple Owners Increase Depreciation Claims

One of the most popular trends in the real estate world recently is co-ownership. A rising number of property investors are choosing to own properties together, and there are some great reasons behind it. Co-ownerships of properties are increasing the purchasing power, which is particularly significant in large cities. Co-ownership also relieves the burden of maintaining a property. The cost of repair and maintenance could be carried by multiple parties instead of one person.

But beyond all of this, co-ownership can also assist in claiming depreciation on property, giving a chance to depreciate more assets at a higher rate. Let’s understand how this works.

What is a split report?

A split report, as the name suggests, splits the value of the assets in proportion to each co-owner’s interest. We calculate depreciation on rental property or private property only after the split. Thus, a split report allows for tax depreciation based on the interest of each co-owner, instead of an aggregate depreciation.

The rationale behind the idea is quite clear. As we know, tax depreciation is a process where the depreciation in the cost of assets within a property is considered as another expense, thus allowing for larger tax returns. When a split report comes into the picture, the distribution of assets too is made according to the percentage of ownership of each co-owner. This increases the number of assets eligible for a write-off or a low-value pool.

The whole tactic accelerates the depreciation benefits for the co-owners, making it a very profitable technique in the early years of property ownership.

Scenarios where split report works

A split report is applicable wherever there is a scope of claiming tax depreciation on the assets of your property. Let’s try to understand how multiple owners are better than a single one.

Consider a scenario where property investors are allowed to receive a write-off on assets that have a starting value of $300 (or less). Typically, this severely restricts the write-off a single owner could get on a property. However, in the case of co-ownership with an equal partnership, each owner is allowed to claim a write-off on items with a value of less than $300. This means that the co-owners can collectively claim ownership of $600 value.

A similar tactic could be employed in case of low-value pooling. Suppose that if the interest of the owner for any asset is less than $1000 in value, the asset would be considered low-value. The owner gets a Deppro contact number and gets told that he could claim them at a rate of 18.75 percent in the first year and 37.5 percent from second year. However, when there is a 50:50 co-ownership, each owner is allowed to claim assets with interest less than $1000, thus allowing to put a total claim worth $2000.

Conclusion:

Asset depreciation is a significant tax deduction for property owners, something to consider during a Deppro review. However, this is far from the only benefit that co-ownership offers. If you are looking to invest in a property, doing so with others can hold some long-term benefits for you. Contact us today to chat about your options.

How Covid-19 Altered Office Space and Claims That You Can Make?

The outbreak of COVID-19 unleashed a major impact on every life all across the globe. And, among the various changes, coronavirus had a major influence on our working style. Till date, the lethal virus has infected millions of lives and killed many all across the globe. But, you need not worry anymore as professionals from Deppro are leaving no stone to offer their services during this unprecedented time. Coronavirus threat has led to some major changes in the business space. Now you are supposed to comply with social distancing norms as a business owner. You may also have to purchase plant and equipment for your employees working from home. You will be eligible to claim tax depreciation for the plant and equipment items you bought and the structural changes you introduced.

Here are some essential facts that you should not miss regarding claims post coronavirus outbreak:

1. Seek claims for renovation

Did you introduce some renovations to your office space? Did you demolish the walls to create additional space for your employees in a bid to fulfill social distancing restrictions? It is worth noting that you will remain eligible to claim tax depreciation for eliminating the walls of the office structure. Don’t forget to specify such renovations in rental property depreciation report that you will prepare.

2. Things to claim while running a business from home

If you have decided to do away with your business space, you will become eligible to claim tax depreciation for the following:

Any fit-out at your office space that you eliminated as a result of your lease agreement. You can claim it as scrapping for the asset that you eliminated. It will also include a portion of Division 43 claims for the structural part of your main place of residency utilized for business purposes. A portion of Division 43 plant and equipment assets at your main place of residence that you utilized for business purposes. It is worth mentioning that assets worth $1,50,000 will remain available for immediate asset write-off. Tax depreciation investment property has emerged as a vital tax allowance to claim.

3. Phone calls

If you are making calls pertaining to your business as well as personal from your home, you can claim a deduction for calls linked to your work.

4. Occupancy expenditures

You may also seek a claim for expenditure that you pay for owning or renting your property. These expenses may include rent, interest, water charges, mortgage interests, and land taxes, among others. You may also claim a deduction for running expenditures. These expenditures are the additional charges that you incur from using your home facilities for business. It will include electricity expenses for warming and cooling, repairs cost on depreciating assets, lighting, etc.

Conclusion:

The pandemic has caused a major impact on office space and things that you can now claim. If you are earning personal services income or PSI, you will be able to claim a deduction for occupancy expenditure like rent or mortgage interest. You may hire professionals to prepare depreciation on investment property ATO report. Meanwhile, an individual’s presence is exempt from capital gains tax when they decide to sell under “main residence exemption”. But if your home becomes your major place of business, you will remain entitled to a limited exemption.

How Cash Flow is Important When You Plan to Buy an Investment Property

Before we start with the effective management of cash flow, you need to understand what is cash flow? Cash flow is the main aspect of any business administration. It refers to the measurement of the net amount of cash that comes in and out of your business or investment in a period of time. At the fundamental level, we can say that Cash flow is measured by contrasting how much money flows into a particular business to how much money flows out of that business.

How to Calculate Cash Flow?

The simple way is to calculate cash flow is subtracting all the expenses and cash reserves from the gross rental income. That is, if your cash flow is positive, then it means that your business is doing profit. And, if your cash flow is negative, then that it means that your business is running at a loss.

For example, if the money put in every year for holding a property is higher than the money earned from it, then the cash flow of that particular property is negative. You must go through the investment property depreciation schedule ATO to obey all the rules of investment ad tax.

Factors You Should Look for Before Investing in a Property

  • Rate of interest: It is an amount of interest due per period as a proportion of the amount borrowed. The rate of interest is prone to fluctuations according to the demands of the market.
  • Depreciation estimates: Depreciation estimate is the future dip or decrease in the selling value of a particular property. It is counted on the basis of the maintenance and value of the land and the age of the property. You can plan out a depreciation schedule for better management of the estimated depreciation on your property.
  • Body corporate fees: In case the property in question is an apartment then maintenance charges for the utilities such as parks, swimming pool, gymnasium, etc. are to be taken into account.
  • Insurance: It provides property protection coverage for the owners. Insurance of a property is a must as it provides a lot of benefits and gives liability coverage.
  • Tax breaks: It is a concession that includes exemption, deduction, or credit which is often allowed by the government in order to boost investments. Apply for the PAYG withholding variation.
  • Rental estimates: It should be an amount that is to be set after taking all the factors into account for a profitable income. It is very important to get your accountant to do all the numbers and chalk out a proper plan.

Factors for a Negative Cash Flow after Investing in a Property

  • Repairs and maintenance: If the maintenance is too high than the income and if you need to dip into your own pocket for that extra money then it is a negative flow of cash.
  • Property taxes and insurance: Taxes and insurance costs can go up anytime and if you do not prepare for such a situation then you have to look for a better deal and invest smartly. But you can also apply for the tax depreciation to compensate for the loss.
  • Tenant turnover: If a tenant moves out suddenly, you have to take care of beyond what their security deposit covers. Again, many property management companies charge a “lease fee” from you, which is similar to a month’s rent.

Bottom Line

Investing in property or real estate is all about counting proper numbers. It deals with an understanding of the business, where cash flow is a major factor in a buy and holds an investment program. Keep in mind all the factors discussed above for positive cash flow. It is better if you have proper knowledge about depreciation for residential rental property before you plan to buy an investment property.

Getting Tax Depreciation on New vs Established Property

Investors and buyers alike have numerous things in mind while buying a property. Tax deductions are a small but significant part of those deliberations. As a smart property investor, one must always lookout to save money while getting the best.

One of the most common deliberations among investors is choosing between a new or an established property. Both have their own pros and cons. However, when it comes to property tax depreciation, new properties easily take the cake. Let’s take a look at the reasons behind it.

Construction Cost

The construction cost of a building is always directly proportional to the tax deductions allowed under Section 43. Now, consider a building constructed ten years ago. Due to inflation, the construction cost of the building was lower compared to the current prices. On the other hand, a brand-new building will have a higher construction cost. Note that this comparison is made by assuming that both buildings are identical, using the same amount of construction materials.

Hence, we can see that new buildings have higher costs and thus higher tax deductions, while established properties have lower deductions.

Maximum effective life

The entire possible life of an asset before it is deemed no longer useful is called the “maximum effective life”. New properties tend to install new assets in them, hence they always have the optimum maximum effective life.”  On the other hand, established properties have assets already in use. Greater maximum effective life means that one can have depreciation at accelerated rates for a longer period of time.

Ineligibility of second-hand items

Second-hand assets have many practical and financial benefits. However, they are not eligible to be claimed under the house depreciation report. The only time second-hand assets could be claimed is collectively during a sale. Established properties often have many second-hand assets bought during the lifetime of the property. On the other hand, new properties will always install new assets. This gives a much broader scope of claiming tax depreciation in a new property than an established one.

Example to Illustrate

Let’s consider a brand-new condo and a similar condo, which is 2-years old. We chart the capital allowance and depreciation for each over 5 years. Both property depreciation reports were subjected to the same tax rate of 32.5 percent.

At the end of it, the used condo had a cumulative tax deduction of $38,750. On the other hand, the brand-new condo offered a whopping tax deduction worth over $60,000. The new condo saved the investor $19,641, while the used condo only saved $12,593 – a difference of around $7000! This is the degree of difference new vs old property could make to your pockets.

That being said, old properties are not completely useless on the tax front. Old properties have their own plans for claiming tax depreciation. If you want to buy an established property, nonetheless, it is always worth checking out the plan for tax depreciation.

Conclusion:

Tax deductions are not the ultimate factor while deciding a great property – for living, business, or pure investment. However, depreciation for tax purposes is important for you; you now know why new properties will always be better.

Depreciation Rules for Residential Versus Commercial Investing

When you decide to buy a property, you need to assess a few essential factors. Investors need to evaluate factors like what type of investment will offer them higher deductions in depreciation form. Based on these evaluations, the property depreciation reports are prepared every financial year. Investors may have to decide between residential property and commercial property. It is worth noting that depreciation deductions apply to investment properties in the following two methods:

  1. Deductions will be claimed for the depreciation of building structure popularly known as capital works deductions.
  2. Deductions can also be claimed for plant & equipment assets available inside the property.

Here are some important factors that you must not ignore:

Vital dates

When it comes to a commercial investment property, the beginning date that ATO allows investors to claim available capital works deductions is July 20, 1982. The items may include bricks, buildings, and roofs, among others. Meanwhile, for residential properties, capital works are allowed to be claimed for properties wherein construction began post September 15, 1987. It depends on the age and kind of building. You can claim either 2.5% or 4% every year of the property’s historical construction cost for the capital works allowance. After assessing all the vital details, you can prepare your property tax depreciation report and seek deductions.

Tenants

For commercial properties, ATO has allowed tenants to claim some depreciation for assets. Commercial tenants will be able to claim depreciation on any fit-out that they have added from the beginning date of their lease. It may include blinds, desks, shelving, carpets, and fire-fighting, among others. However, if a commercial tenant happens to eliminate objects at the end of tenancy and dump them, they can still claim remaining depreciation for assets eliminated and dumped. They can do so when they decide to vacate the property.  Meanwhile, when the assets’ owner seeks to on-sell the objects or retain them for future use, it will not be applicable. If objects happen to be on-sold, the tenant must discuss it with their accountant as it may have tax consequences. Commercial building owners are eligible to claim depreciation of assets installed and left by the earlier tenant the moment tenancy has ceased. You may contact an expert to prepare your property tax depreciation schedule. Quantity surveyors have the required expertise and knowledge of preparing property tax depreciation schedule.

Deductions

Deductions for plant and equipment assets available in commercial and residential properties will rely on the distinct effective lives of every asset. The deductions have been clearly set by the Australian Taxation Office (ATO). For residential properties, it will be directly related to the purchase date of second-hand properties. But, ATO has estimated that few assets used in one commercial industry may depreciate at an increased rate than in residential property. For instance, carpets are expected to depreciate at an increased rate in restaurants and pubs than in residential buildings.

Conclusion:

According to ATO, residential property owners won’t be able to claim depreciation for building they occupy solely. They will be able to claim depreciation on a building that generates income. They should evaluate the tax depreciation life and seek depreciation claim. Meanwhile, for commercial property, there have been methods through which owners can occupy investment property and claim depreciation. It happens when the property is bought by a trust or organization. The owner will then be able to occupy the property as a tenant and claim depreciation.

Things You Must Ask Your Tax Depreciation Quantity Surveyor

If you are an investor, you must be reaping the benefits of depreciation every financial year. When you claim depreciation, it will assist you in enhancing the cash return from your investment property. It is necessary to calculate depreciation on rental property accurately. Depreciation has emerged as an instant victory for investors in the form of non-cash deduction. Additionally, it requires the least effort from the owners’ end. Many investors in Australia seek the services of quantity surveyors for preparing their tax depreciation schedules. It is important to hire a diligent quantity surveyor who will ensure maximum cash deductions.

Here are a few things that you must ask your depreciation quantity surveyor:

Qualification

When you appoint a quantity surveyor, it is crucial to verify that whether the concerned person is a member of the Australian Institute of Quantity Surveyors or not. It is worth noting that AIQS is a leading industry body that helps its members to comply with industry regulations and Australian Standards. The compliance will lead to a high quality of services. Additionally, you should also verify that the firms have been registered tax agents. The expert quantity surveyor must be registered tax agents in a bid to complete tax depreciation schedules for the concerning investment properties. The tax depreciation quantity surveyors should meet this guideline so that they can prepare your tax depreciation schedule effectively.

Expertise in tax depreciation

All quantity surveyors may not be having a specialization in tax depreciation. It is a tax depreciation specialist whom you should trust as he possesses the required knowledge of present Australian Taxation Office ruling pertaining to depreciation. As they have detailed industry knowledge, an expert quantity surveyor can assist their clients claim maximum deductions. They will help in reducing your tax liability and achieve a higher return on your investment.

Ask if your property is too old

Some vital changes have taken place recently for claiming depreciation on second-hand residential properties. The changes took place following the 2017 federal budget. The changes have left many investors wondering if they still remain eligible to claim depreciation for their investment properties. Meanwhile, you must always ask your quantity surveyor about what depreciation deductions will be available. If you have bought your property second hand, there is a strong likelihood that there will be some depreciation deductions available. It may be available in the form of capital works deductions, earlier renovations, etc. Claiming depreciation on property is beneficial and can reduce your tax burden extensively.

Things to be included in tax depreciation schedules

If you desire to claim maximum deductions, your tax depreciation schedule must be comprehensive and ATO compliant. It might also cover you in the scenario of an audit from the ATO. The tax depreciation schedule includes an overview of the total deductions available.

Conclusion:

Make sure that you ask the above things from the expert quantity surveyor prior to hiring. A professional quantity surveyor will prepare your tax depreciation report in the most effective way and reduce your tax liabilities. Additionally, you may also ask him if he outsources any of his work. It is because some tax depreciation companies outsource some parts of preparing a schedule to contractors. Investors will be allowed to claim deductions on plant and equipment assets they buy and directly experience the expenditure for.

Everything You Ought to Know About a Depreciation Report

When you come across a depreciation report, it is usually a key management tool that helps people to plan and meet many expenses. The owners in the corporation plan do have pay for replacement, repairs, and renewal of the property and assets. The report, in turn, helps the owners to secure their investments and offer valuable information to prospective buyers. Moreover, the quality of the property depreciation report depends on the professional or the company that prepares the report. Now, let’s look at why you need a report and what is actually covered.

What does a professional cover in the depreciation report?

A depreciation report gives you the details of the repairs and the replacement work the property may need to undergo. While it speaks about the anticipated costs, it also states the cost the owner has to bear. As the report presents the information in a particular and easy-to-understand format, it shows the details through tables. Usually, apart from the executive summary, it gives the details regarding the assets, projected costs, and the expected service life.

Whenever the report considers long term repairs and maintenance costs, it presents the three funding models. These include paying through a loan, paying through a contingency reserve fund, and special levy. The expert may also state the mode of payment through a combination of approaches. Most of the time, you find such kind of information in a strata property act depreciation report.

Once you go through the report, it comprises of a data sheet for each and every property item. As far as the items are concerned, it includes the normal lifespan of the item along with the actual and the estimated age. It also gives a rough idea of when a person should consider replacing the item. Through the photos, the council and the owner may understand more about the current condition of the assets and the property. Towards the end, the report may suggest ways to the corporation to save money. It may suggest using a less expensive item, the time when you can replace the item, and energy-efficient options.

What is the importance of a depreciation report?

A depreciation report helps you to pace ahead with long term planning. This helps to protect the asset, reduce the maintenance cost, and save money in the long run. Once you get a clear idea of the problems that may occur in the future, you can think about preventive maintenance. Early detection of issues can help to address the issues in a much better way. Besides, tax depreciation reports help the council to make better choices and mitigate risks to a certain extent. When you replace the components at the right time, you no longer have to pay more for emergency repairs. You will be happy when you’re able to lower the operating costs.

How the report does get affected when you purchase the condominium?

When you consider purchasing the condominium, make sure that you get the depreciation report. After reviewing the report thoroughly, you will get a fair idea of renewals and maintenance. However, for some buildings, the strata council may not consider issuing a depreciation report. However, you can seek the reasons if the strata of the building vote against completing the report.

Conclusion:

You should think about updating the report after a few years. Reports have to be updated because assets may not last as you had predicted before. You may also tend to save more money for building and infrastructure material. It may seem tedious to get a report. But, once the council plans for maintenance and costs with repairs, then it can surely help to avoid paying for unexpected costs. If you are not aware of the depreciation rules, then you need to approach quantity surveyor tax depreciation.