Tax Deductions That Property Investors Can Claim

When you seek to achieve financial freedom, an investment property can be an attractive proposition. And, investment property comes with tax benefits. A landlord gets several options to bring down their annual tax bill. A large number of times, these deductions are the difference between a negative cash flow and a positive cash flow. Investors are eligible to claim deductions on their property for the period/s in which it was rented. And, they can claim a deduction for the portion of an expenditure that was used for business purposes. Therefore, they should calculate depreciation on rental property and prepare a record to prove all these details.

Here are the top tax deductions that property investors can claim:

1. Loan Interest:
Investors will be eligible to claim the interest levied on a loan for an investment property. They can also claim interest on any bank fees for servicing that loan. For instance, if you happen to incur $20,000 interest on your loan and $200 in loan fees, you can always claim them on your personal tax return.

2. Rental Advertising Expenses:
Landlords make efforts to find tenants and spend money on various types of advertisements. If you advertise your property using various online tools, brochures, and signs, you can claim them in the same year.

3. Land Tax:
If you have a rented home on your investment property, you use the land tax as a deduction. The tax and the timing may differ between states; the timing will decide when you can claim the cost. You may consult the tax advisor of that particular state to get an idea of the estimate tax returns. He will also let you know that you have claimed the right amount in the right year.

4. Strata Fees:
If your property happens to be on a strata title, you can also claim the cost of body corporate fees. If the fee includes garden expenditures and maintenance, you won’t be able to claim these expenses separately.

5. Capital Gains Tax Discount:
If you made a capital gain by selling the investment property, you must pay tax on profit. If you purchased and sold the property in a period of 12 months, the net capital gain gets added to the taxable income. It will raise the amount of income tax you will be paying. If you had possession of the property for more than a year before selling, you will get a 50 percent capital gains discount.

6. Building Depreciation:
Depending on when your property was constructed, you can claim a deduction on the depreciation of the building structure. You can also claim a deduction if you undertook any renovation on the property. You should have a clear idea about the allowable depreciation on rental property.

7. Stationary and Phone Expenses:
If you are a landlord, it is similar to running a business venture. You can claim deductions on phone costs, internet, electricity, stationary, etc. But, you must claim for that portion of these expenditures that relate to the investment property.

Conclusion:
You must have a clear idea of the various deductions that you can claim. As per the record of ATO, there are 1.9 million property investors residing in Australia. The country has a whopping 2.7 million rental investment properties. Every year, many property investors miss making claims of allowable tax deductions. It happens because they lack the awareness of all the expenditures they can claim as tax deductions. As a property investor, you should be aware of the tax deductions and Deppro depreciation to make the most of your investment property.

Own a Rental Property? Know Your Tax Deductions

Rental properties are a very lucrative investment opportunity for those involved in real estate. Apart from creating a property as an investment, it also turns the investment as a regular source of capital from tenants. However, rental properties also come with some significant taxes. But if you are smart enough, there are ways to save on the taxes. Let’s take a look at how you can claim tax refunds on your rental property.

Capital Gains and Tax

Before we delve into claims about tax deductions, we must understand an important concept: Capital Gains Tax. A capital gain is when the selling price of a property is more than its cost base. A capital loss is the reverse; the selling price is less than the cost base. The CGT is applicable when you derive capital gains from selling your property.

To minimize your CGT, the straight route is showing the capital gains as low as possible. There are perfectly legal ways to do so, primarily by including all possible expenses into the base cost of the property. You can also apply for capital losses from previous years if any. Creating the investment property depreciation schedule and capital works schedule is another way.

Tax Deductions You Can Claim

There are a variety of expenses you can claim for tax deductions, like:

  • Advertising expenditure for finding tenants
  • Any interest incurred over property investment loan
  • Insurance of the property
  • Travel expenses incurred while traveling to inspect your property (subject to scrutiny)
  • Water costs
  • Council costs, if any
  • Management fees of your real estate, if you hired professional help for the same
  • Deprecation on residential rental property assets like air conditioners

While it seems straightforward, being able to claim these tax deductions come with certain requirements. For starters, you must maintain all physical bills and/or bank statements for transactions covered above. Two things must also be maintained accurately: depreciation schedule and capital works schedule.

The depreciation schedule lists all the properties/assets you own on the rental property. It also mentions how much you can annually claim in depreciation tax deduction on rental property. The capital works schedule consists of the building and construction costs of the rental property. It is important to maintain all the bills while you were building the property. In case the bills are amiss, one can ask an architect or builder to assess the costs involved in the construction of the property.

Tax Deductions You Can’t Claim

There are also certain costs that you can’t claim for tax deductions:

  • Any cost incurred while you used the rental property for your personal use
  • All the utility bills paid by the tenants, like electricity, etc.
  • The inherent costs associated with buying and selling of properties are already included within taxes and thus cannot be claimed for tax deductions
  • Sometimes, owners borrow money against the property, like selling its equity or mortgaging it. The costs involved in such loans cannot be tax deducted.

Note: While we mentioned that inherent fees involved in buying/selling of properties are not eligible for tax deductions, many other charges during the buying/selling can be eligible for the same. Thus, it is advisable to maintain all bills of the process.

Final Words:

Rental properties are a great investment opportunity. By claiming the tax deductions in the right way, you can increase your profits from your property even further.

What You Need to Know About Short Term Leasing Your Investment Property

Short-term leasing has taken the property industry by storm in Australia. The industry witnessed a whopping growth of 47 percent. According to reports, 30,000 homes have been leased in the year 2018 alone on a short-term basis. As the short term rental market is becoming competitive, house owners can still capitalize on it. There are many benefits of leasing out a property on a short term basis. Everybody aims to generate some yield on investment property. If you plan to rent your property in such a way, you must remain ahead by focusing on quality. This will help you beat the competition prevailing in this segment.

Given below are some of the things that you must know about leasing your property for short term:

Boosts Rental Yields:

Renting your property on a short term basis can enhance your rental yields. If you want to boost your rental yields, the property must meet the requirement of location. All the locations cannot be the same. There are experts who will provide you with useful advice about your property and its location. Properties located at a famous location must be high in demand. Such properties can generate a handsome profit. So if you are planning to invest in a property, check its location on a priority basis and then make the investment. You must also find out the entire tax depreciation cost.

Depreciation on Short Term Rentals:

Short term rentals can lead to high deductions as you also provide the furniture. The original structure of the property will be eligible for division 43 deductions only if it was constructed after September 1987. The plant and equipment items in the property will be of great significance and not just the main assets like furniture it will also include other items in the property like blinds, AC, carpets, etc. However, furniture items do give you a strong edge as these items receive high rates of depreciation. Things have undergone a change in May 2017. If you purchased an investment property after May 2017, you will be eligible to claim for plant and equipment deductions. For this, you must purchase the property as brand new. You can seek the plant and equipment deductions for the furniture if you purchased the established property after the year 2017, May. You must generate the property depreciation reports in an effective manner.

Ways to Claim Plant and Equipment Deductions on Furniture if You Bought After May 2017?

All you have to do is just purchase the pieces of furniture in brand new condition and, get them installed at your income-generating property. As long as you fulfil this condition, you can claim plant and equipment deductions on the furniture.

Conclusion:

It is time to tap the vast potential of the short term rental market. Do not deprive yourself from the immense benefits that you may receive from leasing your property on a short term basis. And, when you install new furniture in the property, you can avail some very worthwhile deductions by renting it out. Calculate the property tax depreciation and start the planning of renting your investment property.

Top 4 Tips for Maximising Depreciation Deductions in Your Hotel

When one mentions the word hotel, what springs to mind? Cozy rooms, tasty food, well-stocked wine cellars and men and women trying to make their guests comfortable. But behind the scenes, hotels have a lot of wastage (electricity, water and food). This wastage reduces their revenue and income. While hotels might look glamorous on the outside, they too need to save every dollar behind the scenes. One of the less known but very effective ways for hotels to save their hard-earned money is by filing the correct Australian tax return. This blog will tell you four easy ways to legally reduce your tax outlay for your hotel.

Hotel Depreciation Schedule

In case you are in the process of buying a hotel now, then the complete inventory of its assets would already have been made earlier. But you need not lose out on the available tax deduction on account of depreciating inventory/assets. You can still employ the services of a certified quantity surveyor and create a federal tax depreciation schedule. The assessment of different assets of a hotel is more complex than that for a residential property. The assets which qualify as ‘plant and equipment’ in a hotel have a separate listing in the ATO Depreciation rates. That is why a competent quantity surveyor can ensure that any claim you are eligible for doesn’t get missed out on. The quantity surveyor would also ensure that you do not pay tax for the same asset twice.

Make your renovations count

A hotel always needs to look its best at all times. That is the reason hotels undergo renovations or refurbishments quite frequently. As a hotel owner, you need to make sure that your depreciation schedule stays updated always. To ensure this, keep your quantity surveyor informed whenever you are planning an activity. They would advise you what to do with the assets you are replacing, and how to list it in your property report. Many hotel owners make the mistake of sending discarded items/assets to scrap. While the renovation is in full swing, keep your discarded assets aside, and also list out all the new fixtures and fittings being installed. At the end of the refurbishments, the quantity surveyor will make an overall assessment and update your depreciation schedule.

Try to stay within the industry

Like we mentioned before, hotels in particular and the hospitality industry in general, are quite different from others. While looking for a quantity surveyor, try to engage one who has extensive experience with hotels. That way, you will not need to explain your peculiarities to him, and he can easily understand your industry lingo.

Different treatments while buying new

We spoke earlier about situations where you are purchasing an existing property. If you do have a new hotel purchase, then you need to consult your quantity surveyor about how best to treat your assets. This will help you maximise your tax deductions and save money.

Conclusion:

If you are buying a hotel or own one, please make sure you get the best possible benefits of tax deductions on account of the depreciation of your property.

10 Commonly Overlooked ATO Tax Deductions

Taxes are especially painful to small and medium sized enterprise owners. Neither do they have the scale of a large company nor the agility of a startup. But the tax rules are equally applicable to such business owners. This is the reason such business owners often fret about their tax burden. If you are one such person, you should be happy to know that we have good news for you. There are several legal tax deductions that are allowed by the Australian Tax Office.

List of the Commonly Overlooked ATO Tax Deductions

Here is a quick list of Australian tax depreciation and other allowed deductions:

  1. Any new or second hand assets purchased for your business can help reduce your taxable amount by as much as $20,000 AUD. This is different from the fixed assets listed on your property depreciation tax deduction.
  2. Any Union fees paid can be reduced from taxable income under the D5 clause.
  3. All donations of $2 AUD or higher are actually eligible for exemptions. The conditions are that these contributions are made to charitable organisations.
  4. If you operate your business from home, it can provide some relief as well. Remember that this is different from the tax relief your home can provide in your tax depreciation schedule. Here we are talking of the occupancy cost that you incur for running your business from your home. Your expenses on printers, computers, and even licensed software could be claimed under this head. The only condition is that they have been used solely for your business.
  5. In case you are paying any insurance premium, there might be good news for you. This depends on the kind of insurance taken. It should be a policy to prevent loss of business income. Other regular insurance policy premiums cannot be claimed, though.
  6. If you are educating yourself or upgrading your knowledge, the expenses are protected under the ATO rules. This would include expenses like textbooks, professional journals, related travel etc., just to name a few.
  7. This is a good one. If your work is mostly outdoors, and you spend a lot of time in the sun, then there is something for you as well. All expenses on sunglasses and sun shades are considered as expenses made for the protection of your eyes, and can be claimed.
  8. As a business owner, connectivity costs are very vital but sometimes can be quite steep. No business owner can survive without spending money on internet connection at all times, or on mobile phone expenses. The good news is that these too can be claimed.
  9. Say you have employed a tax consulting agency to help you prepare your investment property depreciation schedule ATO. The expenses on fees etc. can also be duly claimed as legitimate business expense.
  10. We’ve left the scary one for last – no business is ever insulated from the bad times. In case your business suffers financial losses in any year, the tax rules also allow you to claim relief on those losses. That’s what they call a silver lining for a dark cloud.

Busting the 7 Myths of Depreciation Schedules

When it comes to tax depreciation, many myths have been floating around specifically regarding what property investors can claim. As you are aware, tax depreciation can benefit any person with an investment in assets or property. And, there are many who are not aware of the depreciation rules for rental property. You need to work out how much your investment property depreciates to claim these values during tax time. A tax depreciation schedule helps in making your rental property work for you. Here are some common myths of depreciation schedules below:

Myth#1: Commissioner’s actual life ruling needs to be utilised for all assets without any exception

Truth: The Commissioner of Taxation’s ruling is only applicable to the new depreciable property. The role of a quantity surveyor is to boost the depreciation deduction for his client. In order to achieve this, he must calculate the actual life of the second-hand assets. He should not assume that all the assets available in the property are brand new. If the asset is depreciable, you can always claim it.

Myth#2: If the assets in the property get damaged, you won’t be able to claim the balance of depreciation

Truth: Division 43 capital works mentions that if taxpayer’s capital works get damaged, the deduction will be available under Undeducted Construction Expenditure.

Myth#3: On the recovery of a depreciable asset, you can claim depreciation on it

Truth: As many investment homeowners use their property at some stage during the year, incorrect figures may surface in their tax depreciation schedule. The main motive of a tax depreciation schedule is to notify the taxpayers on what they may include in a tax return. It may be illegal or misleading if you don’t check whether or not the property was used for private purpose. You must figure out how to adjust the depreciation amount to the right sum.

Myth#4: All the expenses in obtaining a rental property will be able to get depreciated

Truth: The quantity surveyors consistently find any asset to link any and all expenses to claim a deduction without following the laws. It is wrong. You should claim a repair 100 percent only in the year in which it took place.

Myth#5: Once you have spent money on an asset or a capital work, you are eligible to claim it

Truth: As per Division 40, you should start depreciating the asset only when it is ready for use or already used. You should not start to depreciate it from the exact moment when you purchase it.

You can claim deductions only once construction gets over for capital works under Division 43.

Myth#6: If you can’t find depreciable assets in the Commissioner’s yearly ruling, you won’t be able to depreciate it

Truth: The purpose of the Commissioner’s ruling is to assess the exact lives of assets. Not to calculate what is a depreciable property. A depreciable asset is an investment property with a limited effective life. And, they may dip in value with time. Make sure that you are aware of the ATO property depreciation rules.

Myths#7: Your assets get deducted consistently at a 2.5 percent rate

Truth: The rate at which assets get deducted almost always remains at 2.5%. But, at one point of time, you can get a 4 percent rate. The 4 percent rate will be applicable on the income-producing usage of a building with regard to an industrial manner.

Conclusion:

You can seek the help of a quantity surveyor to prepare a detailed house depreciation report. The quantity surveyor will not only help in busting your myths but also maximise your depreciation deductions.

Rental Property Deductions You Need to Know

Like any house, there are regular maintenance works to be carried out, and also ad hoc repairs for sudden damages or breakages. As a landlord, you are not only responsible for having those done on time, but you also need to cough up the money for those expenses, which shaves off a bit from the rental income you receive. The effort put into maintenance work can’t be substituted, but as per the depreciation rules for rental property, you can cushion some of the financial impacts.
Rental Property Depreciation Report Offers Way Out

When you are earning rental income from a property you own, there are several expenses which can actually help you reduce your tax outlay. Those expenses can be made part of your rental property depreciation schedule and then those amounts can be deducted from your taxable income, thereby reducing your tax liabilities. Let us take a look at some of these rules which can help you at tax time.
One of the biggest expenses that can be added to your rental property depreciation report is what you spend on the upkeep and maintenance of your property. For example, the fees paid to carpenters or plumbers for repairs, or gardeners for regular maintenance, and also painters or carpet layers for occasional work. These could be either in the form of one time fees or even regular wages. In order to be able to claim a deduction on these expenses, you need to collect and submit each service providers tax identification number as well. If the amount paid to them is above a certain amount, you might also need to submit additional details in specified forms. If you consult a good firm like Deppro Victoria, they would help you with all the relevant rules and also provide the required forms that need to be filled up.
Apart from the money paid to service providers, some other expenses are also useful in reducing your tax burden. One big area of expense is the money paid for utilities or taxes, which can often be set off against taxes, depending on where the property is. Costs incurred on travel or entertainment of employees can also be listed in the tax deduction charter. For example, an employee gets together can be listed under the head of such expenses. Depending on which location you pay tax at, all employees or business associate expenses might not be deductible, and you need to find out your local rules before you file your tax returns.
The important thing to note is that tax laws have several provisions to cushion the tax impact on landlords, but may get overlooked due to lack of knowledge. If you do your research well or employ a good consultant, you can reduce your tax substantially.

Best Reasons to Invest in Commercial Property

Most people dream of owning their own home. Those who can cross that first hurdle, often go on to their second or third home. Obviously, they do not plan to stay in all of them by turns. The subsequent purchases are for investment purposes only. They give the owner the option of renting or selling it outright for a profit. Additionally, whether you rent or sell, it also gives an option of claiming depreciation on property. There is another option that is popular with investors – commercial property. In this post, we are going to try to help you understand the implications of commercial property investment.

Tax Benefits

The first thing any investor looks at is whether a particular investment brings any relief from tax. A commercial investment property offers tax deductions in two ways. The first is on the capital works expenses made on immovable parts of the property. The second is the depreciation due to plant and equipment. This refers to additional fixtures and fittings that you have spent money on. If you can prepare an accurate and detailed depreciation schedule with the help of a professional, you can indeed save a lot of tax.

Robust Yields

The primary reason for any investment is to sell at a price higher than the purchase price. The property tax depreciation mentioned above is only a bonus. But it is not the most important benefit of investing in a commercial property. The most important benefit is the better returns it usually provides on resale. This is especially when you compare with the average returns of investing on a residential property. This is the primary reason why discerning real estate investors always prefer to deal in commercial properties.

Low Initial Investment

We know that the rental income from a commercial property would be much higher than a residential property. In spite of this, the initial cost of a commercial property is much less. This allows you to begin investing without a very large corpus.

Conclusion:

The purpose of this Deppro review is not to compare the relative merits of investing in a commercial property vs. residential property. We only seek to highlight some of the best reasons to invest in commercial property because many of them are less known to investors. If you are an investor, then you must surely keep commercial properties as part of your portfolio.

How to Claim Depreciation on Previous Owners’ Renovations

Many investors know that they are eligible to claim depreciation of building works they have carried out to a property. However, some don’t know that they can also claim depreciation of renovations done by former owners of the property. The claimable depreciation will depend on the property purchase date and extent of renovation took place. To claim depreciation, you need to consider a few factors like ATO depreciation rates, 2017 budget, etc. The 2017 budget is important as your claims depend on whether you purchased the property before or after the budget.

What if You Have Purchased a Property Before 2017 Budget?

Things won’t be complicated if you happened to purchase the property before the 2017 crucial budget. In such a scenario, you are eligible to make claims under Division 43 and Division 40 of the Income Tax Assessment Act. Division 43 covers the capital works undertaken by the former owner to the concerned property. It may also include all the renovation works such as a bathroom, kitchen restoration, building extensions, etc. It will also include any work carried out for building structure improvement. In other words, you can claim renovation work on the roof or walls done by the previous owner. You can also consult property depreciation consultants to make the process easier.

What if You Have Purchased a Property After 2017 Budget?

In this scenario, you are likely to face some complications. You will have to check the amount of renovation that took place or whether the previous owner did any renovation. Budget 2017 introduced the term “new residential premises”. You will get more details of the new residential premises in Goods and Services Tax or GST Act.

Importance of GST

You will come across the term “new residential premises” under section 40 to 75 of the GST Act. It means that the premises which have not been sold or rented out as a residential property prior to your purchase won’t cause any problems as the term covers new properties.

The Act further elaborates such premises as those that underwent “substantial renovation”. Such renovations mean removal or replacement of the entire building. And, installation of a new bathroom or kitchen won’t get inclusion under the substantial renovation.

How It Will Impact You?

If your investment property does not come into the category of substantial renovations, you can’t claim Division 40 depreciation. A new tool on its own is not sufficient to form a substantial renovation.

If the building underwent sufficient renovation to fall in the category of “new residential premises”, you can claim for Division 43 and Divison 40 work. In such a situation, a quantity surveyor will check the amount of renovation work done on the building. They will create a timeline of the building and create a house depreciation report. The report will cover the renovation work, cost, and extent of the renovation. You can use the report to check if your building comes in the category of “new residential premises” or not.

Conclusion:

It’s important for you to find out the exact date of your property construction. This will help you find out what earlier renovations you can claim depreciation. You can also seek the help of a quantity surveyor to develop a detailed report of property depreciation tax deduction

How Much Will Your Depreciation Schedule Cost?

Every asset you own goes down in value over a period of time. In real terms, this is because of wear and tear due to regular usage. In accounting and financial terms, this reduction in value every year is expressed as a percentage. The concept is broadly similar across the world. But the rules, implementation, and even percentages might vary a bit according to the country and asset category. For this post, let us consider the impact of depreciation on an investment property in Australia. Let us also consider what could be the likely costs involved in calculating Australian tax depreciation on the property.

Tax Implications of Property Depreciation in Australia

The ATO (Australian Taxation Office) has laid down very clear rules regarding depreciation of the value of an investment property. The annual reduction in the value of fixed as well as removable assets of a property would need to be listed in a depreciation schedule. According to this schedule, a property owner can claim deductions on the tax payable by him or her. That is why it is very important to get the schedule prepared by a qualified and experienced professional. Most good consulting companies have experienced quantity surveyors on their rolls. They take accurate measurements and make the schedule exactly as per the recommendations of the ATO. This ensures that a property owned is not taxed more or less than he should be.

Cost Implications of Preparing a Depreciation Schedule

Like everything else in life, there are several ways of going about this. One can even choose to make the schedule on one’s own. This way the depreciation for property would be calculated at zero cost. But this would run the risk of a major error. The error could turn out to be costly in the future. The second option is to employ a company which promises to charge less. You could get the job done cheaply, but there would be a catch. There would be several important aspects not covered under the charges. These would either reduce your tax savings later or cost you more in additional charges. Either way, you end up paying more than you save. So what is the best option?

How Much Will a Good Depreciation Schedule Cost?

The best way of deciding or understanding this is to first list down everything which you necessarily need. For example, do you need an exclusive report for your property? Or would you be okay with pooling the cost with other owners of the contiguous property? Should your report contain inputs from other relevant parties? Would the formal inspection report be part of your tax submission? Based on these points, it could cost as low as $175 plus GST. And it might go up to $1000 plus GST for a comprehensive report.

Conclusion:

A good Deppro depreciation report might cost you more than other cheaper alternatives, but it will help you save more in the long run. You will not only pay less tax, but you will also be protected from needless taxation that is deductible legally.