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.

Some Essential Things You Must Consider Before Living in Your New Property

You need to evaluate plenty of things when you discuss investment property tax depreciation. You may seek Deppro review any time if you encounter confusion before living in your new property. It is because when you purchase a new property, several factors may cause some mix-up. You may have to decide whether to live in the house or give it on rent. It is important to comprehend the consequences of tax deductions. Because it may have an effect on what you may claim and may not as investment property tax depreciation. Some investors may end up making the gross mistake of living in their homes after buying and get deprived of some tax deductions.

Here are a few things that you must assess prior to living in your new property:

What is depreciation?

Depreciation can be described as a scenario when a business asset sheds value over a period of time. For instance, a computer slowly depreciates from its actual purchase price down to zero Dollars as goes through its productive tenure. There have been some established techniques to assess the falling value of those assets and displaying it the business’ books. You may find this particular area of accounting complicated. It is ideal to obtain Deppro contact number and hire professionals from there.

Investment property tax depreciation for primary place of residence

When an investor decides to reside in the investment property, it emerges as his primary place of residence or PPOR. It is because it will be the property where the investor will mainly live. However, the decision will have some tax consequences. The investor will become ineligible to claim property expenditures like mortgage repayments, land tax, repair, and maintenance, among others. The chief reason behind it is that the investor will have no income produced from the property to offset this against. Thus it eliminated their capacity to seek claim of any investment property tax depreciation. You may seek professional services when you calculate depreciation for tax purposes.

Investment property depreciation’s component

The investment property depreciation has two components namely plant & equipment (Division 40) and capital works (Division 43). When an investor buys a new property, he can claim on the investment property tax depreciation component if it gets rented at the first available scenario. It implies that a quantity surveyor will be able to generate an investment property tax depreciation schedule to grab all assets inside the property. It may include kitchen appliances, AC unit, light shades, and ovens, among others. What will happen if the owner plans to live in the property first and then rent out the property? In such a scenario, the investment property tax depreciation will remain available on capital works (Division 43). It will include objects such as concrete slab, timber framing, and kitchen tops among others.

Conclusion:

Keep the above things in mind when you decide to live in your new property as it will impact the house depreciation report. The tax deductions available on plant and equipment depreciation remain highly effective within the first five years. It will offer huge tax savings for the homeowner. You must keep it in your consideration that you may miss out on a huge portion of available tax deductions if you plan to occupy your rental property first. However, when seen from a long term investment point of view, capital works will account for the bulk of depreciation value.

Can I Back-claim for Depreciation on My Rental Property?

Did you own a property for several years but failed to claim depreciation? It also implies that you must have over-paid your taxes for all these years. You can heave a sigh of relief as you can claim back over-paid amount from ATO when you prepare your property depreciation schedule. However, your earlier tax lodgments and personal situation will decide how many years’ tax you can back-claim. You should also seek advice from a professional who will give you detailed information on this front.

Given below are vital details that you must consider when you back-claim depreciation on your rental property:

How Many Years of Depreciation You Will Be Able to Back-claim?

As per ATO rule, the law has set some limits for amending your tax assessment. The time limit has been set for two years for individuals and small business organizations. For other taxpayers, the time limit is four years. And the time limit will be calculated as:

If you are a sole trader and get notice of assessment on November 12, 2017, the two-year amendment duration begins on November 13, 2017. It will end after two years on November 12, 2019. You must take everything into consideration when you decide to lodge an Australian tax return.

Amendment Request

You will be allowed to file more than one amendment request within a period of the review. It also implies that individuals are permitted to amend nearly 2 years earlier tax returns. If you happen to be the beneficiary of a trust, four years limit for amendments will apply. Additionally, all remaining entities like trusts, organizations, and self-controlled super fund may amend tax returns lodged in the last 4 years as a standard. Depreciation residential rental property helps in reducing your tax liabilities to a considerable extent.

How to Back-claim for Earlier Years’ Depreciation?

When you desire to back-claim for earlier years, you should file a request for an amendment to the ATO. The ATO will not be charging any fee in case you request an amendment. Additionally, you will not be required to send yet another tax return unless and until they ask you to. You will be able to request an amendment in several ways. You should get in touch with an accountant as they have the expertise and can execute it with the least effort. We can cite an example. For instance, you bought a 2 years old investment property in the year 2017. But you were not aware that you could benefit by claiming depreciation. The good thing is that you will be able to request amendments for your 2019 and 20219 tax returns. You can also claim deductions in your 2020 tax return and in the coming years as well.

Conclusion:

You may claim depreciation for the years that you failed to claim. It is worth noting that ATO permits you to backdate depreciation by two years in several cases. You should evaluate all these factors prior to calculating your rental home returns. Also, properties constructed during various time periods must be claimed according to different available methods. There is no one set method for all the properties. And, depreciation percentage will be calculated on the basis of the date when construction commenced on the property.

All You Need to Know as an Investor While Claiming for a Property Deduction

With the commencement of the new financial year, investors may be having a tough time cracking the code of improving their deductions. Can you claim depreciation on a rental propertyCan you claim depreciation on an old property? There may be many such questions that may be haunting your minds to save some of your hard-earned money. So if you are someone who is looking out for what and why to claim for a deduction, here is what you need to know:

The buzz about depreciation

A depreciation schedule is basically a kind of deduction that an investor can claim on his/her property. As the property ages, the wear and tear on your building’s fixture and structure stand eligible for deduction claims.

Claims on an old property

If you are someone having a thought in mind that only new properties can be claimed for depreciation, then you need to clear this concept in mind right now. There is no hard and fast rule that your property needs to be new for depreciation claims. According to ATO, the properties that date back before July 1985 cannot be claimed for depreciation. But equipment and plants on the same property comes in the category of allowable depreciation on rental property and are not bound by any such restrictions for a depreciation claim.

Also, you need to know that even if you have not claimed for deductions on your property for the past two years, you can adjust it while filing for the current year tax returns.

Depreciation for long forty years

In concern with the orders issued by ATO, you can claim for write off on a property for a long term of forty years. So if you have brought a new property, then a piece of good news is that you can claim building tax depreciation for forty years. On the contrary, for old properties, the balance number of years from the forty-year term can be claimed for deductions.

Renovation depreciation

Opting for renovation can be quite a costly task, but the only relief is that you can claim tax deductions in association with the renovations made on your property. For this, you can contact a quantity surveyor who will conduct a site inspection and further let you know the tax depreciation cost while filing for deductions.

Hire a qualified surveyor

Always consider hiring a professional and experienced quantity surveyor, as they are the ones who can chalk out the right depreciation schedules for your benefit. Quantity surveyors possess high-level knowledge in their field and have all the latest information. Owing to their association with different regulating bodies, they can help you in significant ways to frame out proper depreciation schedules.

Conclusion:

Many investors are not aware of the building tax depreciation they are eligible for. And, even if they know they may not know the exact amount that they can claim for on their property. Thus the onus lies on hiring a quantity surveyor who will definitely charge you for their services but, in return, can save you from simply oozing out oodles of money from your pockets.

6 Tips for Investors to Make the Maximum Tax Benefits of Commercial Property Depreciation

It can be a little hard for any of us to understand the tax depreciation allowances that are available for all the investors of commercial property. We often get confused between the depreciation rules for rental property and then commercial property assets as the difference in depreciation found can vary significantly. So, by becoming more aware and informed about the commercial property depreciation, an investor can choose the best option available to him. So, let us read about all the important tips that are important to get tax benefits that can be claimed on commercial property depreciation:

1. Claim Tax Depreciation and Continue Occupying the Property

There are many investors who buy a commercial property after their name as a company trust and then lease the property back to the business they own. This helps the individual taxpayer to claim the tax depreciation allowance, which is significant with commercial property. This is legal and can be done. You have to go through the investment property depreciation rules for further information.

2. Old Commercial Buildings Certify for the Building Allowance

The building allowances refer to the rapid fall in the value of the commercial property’s work. Work here refers to all the brickwork, concrete, etc. The date of the construction determines what building allowances you can claim.

3. Claimable Items Differs by Industry and Effective Life

You have to be well informed from all sides to get the best benefit out of your property. Every year there is a list of assets that you can or can’t claim by ATO property depreciation. Commercial property owners do not have any list but there are some assets that are claimed at different rates to residential properties. For example, rugs are claimed over eight years in commercial and ten years in residential. There are also certain industry-specific assets that ATO detailed for depreciation claims.

4. Small Tax Breaks to Help Small Business Owners to Increase Cash Flow

In the 2018 federal budget proposed to extend the legislation and after a long time between May and September, the extension of legislation was finally passed by the Senate on the 12th of September 2018.

5. The Bigger the Building the More You Can Claim

The height of the building plays a key role in tax depreciation. The taller the building, the more amount can be claimed for depreciation for the owner of the property. Taller structures attract higher deductions because there are great expenses and greater capital works involved in the overall construction of the building. Multi-storey buildings have other common assets like lifts and fire services which can result in plant and equipment depreciation being available for the owner to claim. Other commercial properties like swimming pools, gyms, etc. can be put for the claim of plant and equipment deductions as this also plays in overall depreciation value for the property investor.

6. Look for an Experienced Quantity Surveyor

The ATO recognizes all quantity surveyors as one of the few professions that have the required construction costing skills to calculate the cost of all the items for the very purpose of depreciation. If the original price of the construction is unknown it is always better to consult with a good quality surveyor for any tax depreciation help to estimate the costs for you.

Bottom Line

As there is much difference between a commercial property valuation and a residential one, it is always better to know the proper depreciation value that you can claim later without any problem. As mentioned above, engage with a proper quantity surveyor to give a ready detailed report outlining the claim each year on both the decline in value of the building’s structure as well as income-producing assets.

5 Ways for Maximizing Depreciation Deductions for a Commercial Space

If you’re planning to purchase a commercial space, then claiming depreciation deductions should be the foremost priority. As you claim depreciation deductions, you would be able to save a lot of money every year. Depreciation deduction is nothing but the difference between the negatively geared investment and the positive cash flow. But, even as you claim a depreciation tax deduction on rental property, you would be able to improve the financial position of the business. So, here are some ways through which you can maximize the depreciation deductions for your commercial space.

1. Think about ownership to your benefit

When you purchase a commercial property, you can claim for a single entity and thereby increase the deduction. This is only applicable if you’re managing the business from a certain location. When it’s time to claim the depreciation, you may take into account the actual building as well as some items like fittings and fixtures. But, in this case, the fixtures have to be set up at the location from where you are managing the business.

2. Get in touch with an expert

All property investors usually contact quantity surveyors. These are experts who specialize in deducting the tax depreciation. Once the expert inspects and evaluates the property, he would then proceed with a tax depreciation schedule. Such a schedule would help to foresee deductions that you can claim up to 40 years. Moreover, once you approach one of the reputed tax depreciation surveyors, you could think about ongoing profitability and financial planning.

3. Maintain a record of the costs

To keep a track of depreciation deductions properly, you should always remember to maintain a record of various costs. You could note down the running costs, the daily expenses, and the upfront costs. However, when you keep a record of the costs on a regular basis, you should consider the financial transactions for your business and the commercial investment property. Besides, you should always take into account the expenses and the costs associated with the assets.

4. Think about the best depreciation method

When you speak with a quantity surveyor, the expert may suggest a depreciation method for the investment property. For short-term investment, the surveyor opts for the ‘diminishing value’ method. But, for long term ownership, the expert may move ahead with the ‘prime cost’ method. Regardless of the method, both can help you save a lot of money. The surveyor could further choose the method depending on the situation. If you wish to know the depreciation limits, then you should refer to tax depreciation tables 2015.

5. Always seek the benefit from the ‘first year’

During the first year, you can expect maximum depreciation deduction. While you can observe more depreciation on assets or certain items, you can insist on the expert to use a reliable tool. This can actually save time when the surveyor tries to maximize the upfront savings you can gain through depreciation.

Conclusion:

If you hardly have the time to calculate the depreciation, then you can seek assistance from experts. But, if you consider purchasing a property while planning ahead, then it’s better to speak to an experienced quantity surveyor. Way ahead, you can request the expert to come up with a depreciation schedule. This would help you know more about the depreciation amount for various assets depending on the asset’s life. Just in case you tend to pay more taxes, then you can request tax refunds a bit later.

5 Smart Ways for Investors to Use the Extra Cash from Depreciation

Do you know that you can improve your cash flow with estimate tax returns? This happens because depreciation essentially lowers taxable income which means you can foresee more precisely and put more money in your pocket at tax time. When people get this extra cash in their pocket, they tend to put this money into savings, buying a property, car, going on a holiday, or even put it towards the daily living expenses. But if you are an investor and want to use this extra cash in smarter ways, here are few options for you:

1. Pay Your Debts:

It is always best to do the necessary things rather than buying a new car etc. If you have any major debts, this is a very good chance for you to reduce or eliminate them.

2. Expand Your Portfolio:

Your financial advisor will tell you that modifying or diversifying is a great way to reduce risk and is important for your long-term financial success. When you have a modified portfolio, different investments are likely to react differently to the same event; which means, if one of your areas is suffering, you will still have another area growing. This will save you from a significant financial loss.

3. Invest in a Renovation in Your Properties:

It is always a good idea to keep your investment property prim and proper. Try to invest in high quality appliances and change the overall look with a fresh coat of paint. Using this extra cash from property depreciation tax deduction to improve your current investment property is a nice idea. Renovations obviously also boost rental returns and increase the overall property value.

4. Expand Your Business:

When you are a commercial property investor or in a business of a tenant, extra cash never goes in vain. Depending on how your business is travelling, you can use that extra cash to expand the horizon. It means expanding the business or investing in other properties for business. For example, you can buy new properties and equipment for new properties.

5. Grow Your Portfolio:

As an investor, you should never stop at one property. You will experience greater success and returns by growing your property portfolio. But you have to consider this only if this works for you and your financial situation and fits you right with your investment goals. It is always a good idea to do some research to make sure you are investing in the right area to maximize capital growth and rental returns.

Consult an Advisor

It is important to note that these are only generalized ways to invest your money in better ways. It is always best to consult Deppro quantity surveyors to determine the best course of action for your circumstances.

Bottom Line:

There are many other ways in which you can boost your cash returns from the tax return you get in your pocket. However, you need to go through the ATO tax depreciation schedule for a detailed picture.