Preparing your annual tax return is a great opportunity to take stock of how your investment property is performing and to make sure you’re claiming everything you’re entitled to.
We thought we would share our top tips for tax time to help you get the most from your investment property.
Claim depreciation to maximise returns
Any investment property that generates income may be eligible for thousands of dollars in depreciation deductions. In fact, most investors can claim an average of $5,000 – $10,000 in deductions in the first full financial year alone. Property depreciation is often missed as it’s a non-cash deduction; that is, the investor doesn’t need to spend money in order to claim it. In fact, research has shown that 80% of property investors are missing out on the depreciation deductions they’re entitled to.
Order a tax depreciation schedule
A depreciation schedule outlines all the deductions you can claim for your property. It lasts for 40 years and the fee for preparing it is 100% tax deductible.
Amend previous tax returns
Investors can amend two previous tax returns to recoup any missed deductions.
Claim for new and old properties
Investors who are unsure whether they are eligible to claim deductions due the age of their property or the items within it should seek the advice of a specialist Quantity Surveyor*. While newer properties generally do attract higher deductions – due to the higher starting value of a building’s capital works and the items within it – most properties are able to generate some deductions so it’s always worth enquiring about.
Use a split report to increase deductions
Do you co-own a property? Then it’s usually more beneficial to order a split report in order to maximise the returns for each owner. To ensure that clients who co-own investment properties are maximising deductions, it’s important that Accountants recommend their clients obtain a split report. A split report calculates each owner’s percentage of ownership of the assets within a property before applying depreciation deductions. This usually qualifies more assets for accelerated depreciation and gives the owners greater returns sooner. Accountants also need to be aware that co-ownership will affect the way deductions should be calculated for assets which are eligible for an immediate write-off and accelerated depreciation.
Do you only lease your property out for a portion of the year? Then make sure you make a partial year claim for depreciation.
The Australian Taxation Office (ATO) allows investors to make a claim for depreciation based on the amount of days a property was available for lease. This could be if you’ve only recently purchased an investment property and only have one month to claim for, or you use your home as a holiday rental for part of the year.
Make use of techniques that maximise deductions early
This includes low value pooling and instant asset write off. A Quantity Surveyor will be able to determine which assets qualify for accelerated depreciation. This will put more money back into your pocket sooner.
Claim for renovations and improvements
There’s a difference between a repair and a capital works improvement and this will affect your claim. The full cost of repairs can be claimed in full in the same financial year they are completed. An improvement, on the other hand, is when you improve the condition of an item or property beyond that of when it was purchased. Such improvements are capital in nature and must be depreciated over time. For this reason, if you’ve made any renovations or improvements to your property in the last financial year, you should seek the advice of a Quantity Surveyor to ensure this is in your claim correctly.
Ensure you use a specialist Quantity Surveyor to prepare your tax depreciation schedule
Quantity Surveyors are one of the few professionals recognised by the ATO to have the appropriate construction costing skills to estimate building costs for depreciation. However, not all Quantity Surveyors specialise in tax depreciation. Make sure you do your due diligence to ensure they can be relied on to maintain detailed knowledge of all current ATO Tax Rulings relating to depreciation.
* Under new legislation outlined in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 passed by Parliament on 15th November 2017, investors who exchange contracts on a second-hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on previously used plant and equipment assets. Investors can claim deductions on plant and equipment assets they purchase and directly incur the expense for. Investors who purchased prior to this date and those who purchase a brand-new property will still be able to claim depreciation as they were previously.
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Presented by BMT Tax Depreciation
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Bradley joined BMT in 1998 and as such he has substantial knowledge about property investment supported by expertise in property depreciation and the construction industry. Bradley is a regular keynote speaker and presenter covering depreciation services on television, radio, at conferences and exhibitions Australia-wide. Please contact 1300 728 726 or visit www.bmtqs.com.au.