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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.

4 Tax Deductions Everyone Should Know While Investing in Property

Many people lack awareness about one of the most profitable tax deductions investors use to make a purchase economical. Interest has emerged as one of the major expenses of buying an investment property. And, a large number of people are not aware that mortgage interest payments on an investment property is tax-deductible. For the benefit of investors, interest has emerged as a cost that is deductible from rental income; it can help in minimising your tax obligations. If you are planning to invest, it is ideal to gain some knowledge of property investment. You should seek the services of experts for claiming depreciation on investment property.

Below are some of the main tax deductions that you should be aware of:

1. Maintenance and repair cost:

In order to maintain your investment property, you may have to indulge in some maintenance and repair costs. There are various types of repairs and maintenance such as repairing a leaking roof or fixing a damaged tap; these costs are all tax-deductible. Your property agent’s charges and insurance will also be deductible. You can claim the costs of running your home office like electricity, internet or rent to the level you use it for investment. Your advisor’s fees, accountancy fees, and property investing subscriptions also fall in the category of tax-deductible items.

2. Loan interest:

It is noteworthy that annual interest paid on investment loans will be tax-deductible. You should asses your property investment returns with the utmost care. An experienced investor knows that interest on borrowed money for investment property is deductible. It does not matter whether the money is for stamp duty or legal fees. You only have to prove that the funds are related to the investment purchase. And, it holds true whether you borrowed the funds from a bank or from different property’s equity.

3. Depreciations:

Many people frequently ignore depreciation deductions in old properties. They are under the notion that old properties lack depreciation value. However, this is not true. If you make any renovations or improvements to an older property since its construction, it can also depreciate. As your accountant won’t be able to prepare a property tax depreciation schedule, you can hire a quantity surveyor.  You should use the services of an expert quantity surveyor as he can spot all depreciation available on the property.

4. Travel:

At times some traveling undertaken for the purchase, maintenance or inspection of your investment will be eligible for a claim. You can claim by cents per kilometre for traveling undertaken to these experts or even to your own property. If you failed to claim them in the past, you will be allowed to put an earlier date. In case some confusion prevails, you can speak to an expert tax accountant.

Conclusion:

It will turn out to be profitable for you to improve your awareness of common tax deductions. Several studies claim that younger people tend to remain unaware of the various tax deductions. Few people are aware that interest repayments are eligible for tax deductions. Some experts say that the higher prices of houses may have caused people to get less occupied in research investing. However, you should not forget to claim your tax depreciation and in case you find the calculations tricky, you may seek experts’ services.

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.

Can Depreciation on My Rental Property Be Back-Claimed?

Several property investors are not fully aware of the tax benefits they can claim from their rental property. As per ATO rules, a certified quantity surveyor can help such investors reduce their tax burden. This is on account of the depreciation on their property every year. A quantity surveyor can help them make a detailed tax depreciation schedule for rental property. This would then help reduce their taxable income. As a result, the annual tax also gets reduced. Were you aware of this? If so, then you must be claiming the due depreciation tax benefit every year. But things not stopped here. Let’s say you missed claiming the depreciation on your rental property in some previous year. You might have given up that tax deduction as lost forever. But that is not correct. You can also back-claim your depreciation benefits on rental property. Read all about it here.

How Many Years Are Back-Claims Permitted?

This would have been the first question in your mind by now. The ATO has different sets of rules for different categories of taxpayers. If you are an individual taxpayer or the owner of a small business, then you can back-claim missed returns of the last two years. For other categories of taxpayers, this period is four years. For all these periods, the date of calculation is important. ATO guidelines state that the date of notice for tax assessment is the date from when the period is considered. In case you haven’t got any notice, then the date you filed your incomplete return is considered. Also, for the same period, you can submit more than one request for amendment.

The Process for Back-Claim of Previous Years

The process begins with a simple request for amendment made to the ATO, which is free of cost. After that, you need to wait for the ATO to send you the notice for submitting the amended return. While you wait, you should get your amended rental property depreciation report readied. The ATO website does provide all details for you to do it. But you should get this done by a certified quantity surveyor or at least consult your tax accountant. That way the chances of errors are minimised.

A Review of the Entire Process

Now that you know that a couple of years of delay can be corrected, you need to understand the complete picture. ATO rules allow you to claim tax relief on account of depreciation. Depreciation is the annual reduction that your rental property suffers. This is a normal accounting principle. You can claim depreciation for both fixed assets and other fixtures and fittings.

Conclusion:

You may have submitted incomplete rental home returns in previous years. It could be simply because you didn’t know about it or you might have missed it. All it means is that you paid a slightly higher tax that year. But that mistake can be easily corrected. You can back-claim for two to four years, depending on what type of taxpayer you are. Get in touch to learn more and speak to one of our professional team members for more insight.

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.

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 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.

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.

Should I Buy an Investment Property with a Swimming Pool?

When you are looking to invest money into a property where you do not plan to live but rather rent out, you need to strike that sweet spot where minimal investment and maximum returns meet. Your property investment returns must be greater than the upfront costs and the recurring costs put together.

How Wise is it to have a Pool on your Investment Property?

Let us take an example of a swimming pool in the backyard of your house. Who doesn’t like to imagine a lazy sunny morning spent lounging by the poolside? Is there any greater joy than a swim in crystal clear blue water? A pool adds a lot of value to a house, for the owner as well as the resident. But we need to remember that a pool comes with several costs.

The Cost of a Swimming Pool

The cost of building a pool might be a one-time investment, but the maintenance of a pool is quite costly, and those costs are repetitive. If you have a traditional swimming pool, then cleaning of leaves and other debris would need to be done manually. But for more modern self-cleaning pools, the costs become higher. The property report for a house with a pool would have a large chunk of the expenses earmarked for the pool.

What Australian Tax Depreciation Rules Say?

Having read so far, you might be tempted to think that a pool on your property might not be such a great idea after all. But there is another important factor to consider – the Australian tax depreciation rules. As per these rules, several elements of the cost of building and maintaining a swimming pool can be set off against depreciation, and tax deductions can be claimed on them.

This is how it works. When a house is constructed, the money spent on it could be broadly divided into two categories. The first is capital works, and the other is plant and equipment. Capital works would include the fixed part of a building, like the walls, floor, and wiring etc. Plant and equipment would include removable parts of the property like smoke detectors, upholstery, electrical appliances etc. A complete list of both these types of depreciation expenses needs to be made by a certified agency like Deppro using an investment property calculator. This list is then submitted along with the tax returns and deductions are availed on tax on the basis of the depreciation calculated. Many elements of the cost of a swimming pool construction can also be included in this list and deductions claimed.

Final Thoughts:

On the whole, you need to consider the location of your property, the cost of the pool, and the amount you can claim later as tax. After considering these factors, you can decide wisely whether you should buy an investment property with a pool or not.