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.

How Depreciation Works for a New Investment Property

When you buy or own an investment property, you are responsible for the maintenance and upkeep. But the property also becomes part of your assets, and therefore it gets linked to your tax liability, and therefore you should consider it as part of your investment property calculator.

What is Depreciation?

As per the principles of accounting, any asset loses value with time, and every year its value decreases, this is called depreciation. We see this most commonly when the value of an automobile is calculated by the insurance company every year before calculating the annual premium to be paid for its insurance. The value of the car is reduced every year, and the new premium is calculated as a percentage of this reduced value, not on the basis of its purchase price.

Benefits of Depreciation

The ATO allows property owners to get the benefits of the depreciation that their property suffers. This depreciation on investment property ATO can actually be claimed as a tax deduction while submitting the tax returns. For this, a process has been laid down by ATO, which requires the homeowner to employ the services of qualified professionals.

The Two Types of Calculating Property Depreciation

A building can have two aspects of the calculation of its tax depreciation investment property.

  • The first mode of the calculation of depreciation is on capital works. It includes all the expenses made on the construction of the building. This depreciation can be claimed over a period of forty years. This period has been decided based on the average expected lifespan of a newly constructed investment property.
  • The second mode of property depreciation is based on the value of the assets added to the building. This would include things like upholstery, furniture, electrical, and utility gadgets, etc. The list provided by ATO also lists the expected lifespan of each item. For example, a carpet is expected to last 10 years, while a kitchen stove can be expected to last two years more.

A Brief Process for Claiming Property Depreciation

The tax declaration would need to contain a detailed schedule for you to be able to claim both the types of depreciation listed above. A certified quantity surveyor would be required. This is because actual measurements and enumeration of every small and big component would be needed. Once the list is ready, the calculations can begin.

Based on the age of each component, and the rate laid down by the ATO, the total depreciation amount is calculated. Once the amount is final, then the amount of tax deduction applicable can be calculated.

Conclusion:

Many homeowners are not aware of the depreciation rules. If these rules are properly utilized, a homeowner won’t need to pay more tax than needed. A proper tax depreciation schedule for rental property can also prevent tax deduction being claimed twice for the same component. All that is needed is to utilize the services of a good consultant. The consulting company and its team of quantity surveyors will help you claim the right tax breaks.

Why the Depreciation Shake-up Gives Off-the-plan Investors an Edge at Tax Time

The year 2017 saw some changes brought about in the rules governing depreciation on investment property in Australia. The attractive option for claiming tax deductions due to the depreciation of the property value saw a cutoff date being applied – 9th May 2017. People who bought a second-hand property after date could no longer claim the deductions, as per the ATO regulations.
An Overview of Depreciation

We know that any asset undergoes wear and tear as it continues to be used. Accounting principles look at this reduction as a standard percentage of the value which gets reduced from the value of the asset. Under tax laws, this depreciation amount could be set off as a deduction from the tax payable. This would make a substantial change in the cash flows of a property owner. Based on the cost of the property, maintenance costs, reduction in value, and the reduction in tax payable, the depreciation could impact the net yield on investment property.
The New Tax Law

From May 9th onwards in the year 2017, second-hand property purchased would not attract the tax deduction. The only two categories allowable were new assets added to older homes and assets in new homes would allow admissible deductions. Those who were off this new plan could continue to claim under old rules. Also, capital works investments and fixed items added could still be claimed. But any assets that came along with the property went out of the purview of the deduction.
The Better Option between New and Second Hand

Because of this change, property owners needed to rethink their investment strategy. Back of the envelop calculations seem to present a clear picture. It was seen that a new property could work out much cheaper than investing in an older property of the same value. The detailed working of the investment property depreciation schedule ATO would provide a similar answer. What this does is to take the tax benefits out of the equation. So an investor should look at the cost-benefit analysis of the property only. Tax deduction benefits would cease to make a difference to the numbers. So how do the new tax rules affect the comparison between old and new? A property purchased in 2016 might turn out to be of similar value to a brand new property purchased in 2018. This needs investors to recalibrate their calculations carefully and in advance.
Conclusion:

In order to get the best property investment returns, an investor would need to calculate carefully. The best way is to leave it to the professionals. Consultants like Deppro could depute their qualified quantity surveyors to get the math right. They would set up the depreciation schedule according to the purchase date. The ATO has detailed lists of what can be claimed and for how much. These quantity surveyors would work out the numbers in accordance with these ATO guidelines. The amount that such a report would cost could ensure savings of higher amount if the calculations are done by a professional.

7 Questions You Should Ask Your Quantity Surveyor

Before that time of year rolls around again, when you have to file your tax return, you need to begin preparing your documents. While the income and expenditure are fairly straightforward, most people get stuck while preparing their tax depreciation schedules. That is why most people lean on professional tax consultants for this. If you own an investment property or a rental property, you may also require the help of tax depreciation surveyors who can make an assessment of your property and then prepare the submission schedule. Before you hire the services of such a surveyor, there are some important things which you should ask your quantity surveyor.

1. Do You Have Certified People Or Will You Outsource?

The survey work for property depreciation schedules can’t be done by just anyone; only certified and qualified surveyors can do it. But many tax consulting firms outsource the work of surveying to smaller firms. In such cases, you run the risk of having the survey done by someone who isn’t certified. Therefore, it is vital that you check with the firm as to whether they outsource any of their work.

2. Do You Have Insurance Coverage?

Surveying involves a whole lot of measuring at your property, for which surveyors need to often climb ladders or onto roofs. If they suffer a fall or any other kind of mishap, it would pose a major issue. That is why it is advised that you only hire firms who have insurance coverage.

3. What Are The Services You Provide?

The quantity surveyor tax depreciation only do the survey and measurements. After that their would need to prepare your returns as well. That is why you need to find out whether the firm you are employing only does surveys or can they provide end to end services.

4. Do You Have Any Questions For Me?

Every property has its own special features and would be differently treated by tax laws. Before the surveyor begins his or her work, you need to show them around and ask questions about your property. The answers to those questions and the surveyor’s own questions to you would tell you how well the survey would be done.

5. What Elements Would Be Included In The Depreciation Report?

Like we previously mentioned, a quantity survey is the start of your tax declaration and claims process. The Deppro quantity surveyors would finish their job and hand it over to their colleagues who would complete the rest of the process. You need to know from the surveyor what elements he or she will include in the report because that would determine the tax deduction amount.

6. What Categories of Properties Do You Handle?

It is important to learn what kind of properties their firm specialises in. There are firms which would be doing the surveys for commercial or industrial properties only. So, they might not have the required expertise regarding residential properties. It is preferable to work with someone who knows their stuff.

7. What Is Your Fee Structure?

Last but not the least; you need to know how the surveyor would charge their fees. There are some who charge a flat fee, while there are others who charge as per the square feet area of the property. There could be some others who charge a percentage of the total amount in the depreciation schedule.

Conclusion:

Asking the above questions will not only help you know how professional your quantity surveyor is, but it will also help you learn some extra information about your own property.   If you think there should be some more questions which are important to ask your quantity surveyor, please let us know so that we can share those with our readers and customers in our next post.

Discover the Benefits of Claiming Depreciation for a Commercial Property

A person buys additional properties with the plan to monetize the assets. This is usually done by renting these out. But many people are not aware that their property can provide monetary benefits outside the rental income too. These benefits are in the form of possible deductions in tax. This blog post will discuss the different aspects of depreciation tax benefit.

How Depreciation Affects Tax?

We all know that an asset has more value when purchased than the same asset a few years later. This common knowledge is called depreciation in finance and accounting syntax. Depreciation refers to the diminishing of the value of any asset with each passing year. When it comes to residential properties, this reduction in value is made up to some extent by the Australian tax rules. The ATO guidelines allow property owners to claim a deduction in tax amount on the basis of this reduction. This deduction is calculated as per the extant investment property depreciation rules.

The deduction in tax payable is applicable to the following two types of assets on residential properties:

1. Capital Works Deductions:

This is the deduction applicable to the capital assets of a property. In simpler language, it refers to the immovable part of a building, like walls, floorings, tiles, doors and windows, wiring, etc. The only thing a house owner needs to keep in mind is the cut off date for the enforcement of this legislation. All properties constructed after 20th July in the year 1982 would be eligible for this deduction. Capital works deductions on properties constructed before this date would be eligible only for repairs, renovations, etc.

2. Plant and Equipment Depreciation:

This is the second way under which claiming depreciation on investment property is allowed under ATO guidelines. This is applicable for all the removable parts of a building. In the ATO guidelines, a complete list of around 1500 such items is provided. Some examples are upholstery, electrical gadgets, air conditioners, etc. A typical building is considered by the ATO to have a useful life of 40 years. But the movable assets listed under plant and equipment have much smaller life spans listed under the guidelines.

Why You Need a Professional Help for Claiming Depreciation?

Most people consider basic financial aspects while purchasing an investment property. But if one considers the tax benefits from the depreciation perspective, the picture changes a lot. The problem with these calculations is that a layman might not be able to do them accurately. A professional company would be able to help in the following two ways:

  • Before purchase, they would help with the calculations of the tax implications of depreciation.
  • After purchase, these companies and their teams would help file tax returns accurately, taking depreciation into consideration.

This is why most prospective buyers consult these experts before the purchase decision.

Conclusion:

A home can be a financial boon in more ways than we think. Experienced and dependable consultants like Deppro can help an investor maximise tax savings by creating an accurate depreciation schedule. They could also ensure that multiple deductions are not claimed by mistake.