The Transition of Property Tax Cash Position

It is often a surprise to property investors who own an old building to find that property depreciation will attract significant depreciation benefits for both new and old properties. Property owners who have not been claiming depreciation are able to go back and amend previous returns to claim missed deductions in previous financial years. Ensuring that each depreciation claim is maximized on any building requires a combination of construction costing skills and thorough knowledge of current tax depreciation legislation. This is the reason why it is recommended for investment property owners to consult a specialist Quantity Surveyor to prepare a Depreciation Schedule before lodging their tax return. Rental property depreciation is a non-cash deduction that the Australian Taxation Office (ATO) allows any owner of a rental property depreciation to claim due to the wear and tear of a building over time. The latest value-adding tool for property professionals, New to Rent, provides Property Managers with complimentary depreciation estimates tailored for each rental property their agency lists.

The estimates highlight the difference depreciation can make to an investor’s cash flow and ultimately help industry professionals establish a point of difference in today’s competitive property management industry. For investor clients, being advised of the potential depreciation deductions they could be claiming is a valuable source of information, helping them to determine their after-tax cash position. These kinds so assets would normally depreciate at a pre-determined rate set by the ATO, which varies between assets. Property investors who acquire low cost assets and choose to place them in the l for example, if an asset is valued at $300 or less, the owner of the rental property depreciation Gold Coast will be entitled to write-off the full amount in the first year. If the asset is valued at $1,000 or less, increased rates of depreciation can be applied through the low-value pool. A low-cost asset is a depreciable asset that has an opening value of less than $1,000 in the year of acquisition. This can include things like cooktops, range-hoods, exhaust fans and blinds. Properties with long leases will be better equipped to handle a transitioning property cycle.

One of the categories with typically longer-term leases is that of childcare, that has been a perplexing sector of the market, particularly in the later stages. There is a real disconnect developing in this sector, and a proliferation of developments to the point that some localities are being saturated and over developed. We have been seeing 30%-plus profit margins in the development of these facilities for rental property depreciation where the sales of the finished products are yielding 30%-plus profit on the total cost base. In one case in the outer western metropolitan area a new facility sold for around $6 million, on a cost base of circa $3 million. That profit margin has been the catalyst for the overheated development frenzy of childcare. It will self-regulate soon, because we are seeing these new centers failing to reach appropriate occupancy thresholds to justify their business models. There is a lag effect, but it will come to the fore in time. Although there have been recent changes to rental property depreciation Gold Coast legislation there are still thousands of dollars in deductions to be claimed by property investors.

Organizing and Reducing the Tax Property Assets

It’s time to start getting your income tax return in order and aside from being compulsory, preparing your annual tax return is a great opportunity to take stock of how your investment is performing and to make sure you’re claiming everything you’re entitled to. If you own an income-producing property and have a taxable income in Australia, then you could minimize your taxation liability with a tax depreciation schedule. What is Tax Depreciation? Tax depreciation is an allowance for fair wear and tear on any income-producing or investment property. Tax depreciation deductions reduce an investor’s assessable income, allowing the owner to reduce the amount of taxation payable. It’s not too late to claim depreciation and deduction is based on the depreciating value of the property asset. 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. With the 2016-2017 financial year now over, property investors may assume they have missed their opportunity to organize a tax depreciation schedule and make a depreciation claim.

Research suggests around 80 per cent of property investors simply don’t claim because they are unaware of depreciation, they don’t know the rules, or they don’t realize they’re eligible. Legislation enforced by the Australian Taxation Office (ATO) allows investors to claim depreciation deductions on any income producing property for the wear and tear that occurs over time to the building’s structure (capital works deductions) and the plant and equipment assets contained. Both new and older properties attract depreciation. Although the ATO restricts owners of older residential properties on claiming capital works for buildings in which construction commenced prior to the 15th of September 1987, depreciation schedule of BMT tax outlines all the deductions you can claim for your property. It lasts for forty years and the fee for preparing it is 100 per cent tax deductible, depreciation of plant and equipment can be claimed for most buildings. Property owners could also be entitled to claim deductions for any recent renovations or updates made. Do you co-own a property? Then it’s usually more beneficial to order a split report to maximize the returns for each owner.

To ensure that clients who co-own investment properties are maximizing deductions, it is important that Accountants recommend their clients obtain a split report and need to be aware that the way deductions should be calculated for assets will be affected by co-ownership and are eligible for an immediate write-off and accelerated depreciation. 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. A specialist Quantity Surveyor can prepare a tax depreciation schedule Gold Coast at any time of year. This schedule will begin from the property’s settlement date and outline depreciation deductions over the entire depreciable life of that property (forty years). If an investor has not previously claimed or maximized the depreciation deductions available from their investment property, they can go back and amend two previous tax returns.

The Form of Capital Deduction that Works

When looking through a commercial property most individuals have a clear idea in mind about what they would like to transform, change or update. Make sure your dreams are realistic and within the total price of what you can afford to spend. Especially when it comes to repairs that will need to be considered well before you work on the aesthetics of your new commercial space. Where do you need to focus your attention when it comes to the important step of inspecting a commercial property? There are a plethora of do’s and don’ts when it comes to commercial property depreciation, purchasing or leasing and they all start with the property inspection. How can you ensure that your new commercial space is the perfect place for your business or to invest? As a commercial tenant, when you first sign a lease, you will often need to spend a substantial amount of money installing assets and fitting out the new space before you can open the doors for business.

You might need to install a security system to keep the items you have for sale safe, partitioning may be required for offices or meeting and consultation rooms, a kitchen area might be required for lunch breaks and signage might be needed for the shop front. Though businesses owners commonly install these and many other assets, they are often unaware they are entitled to claim them as a commercial property depreciation in the form of depreciation. As a building gets older and items within its age, they depreciate. The Australian Taxation Office (ATO) recognizes this and allows commercial building owners and tenants to claim deductions for the wear and tear on buildings and the fixtures and fittings within. Depreciation can be claimed in two ways; as a capital works deduction for the decline of the building structure, and as deduction for the depreciation of all plant and equipment items contained within the property. Some lease conditions also mandate that tenants must return the property to its original condition once a lease expires.

If a commercial tenant removes or disposes of any assets, a commercial property depreciation schedule can help show the value of the items being scrapped. Tenants are then able to write-off these items as an immediate tax deduction in the year the asset is removed for any remaining depreciable value. Considering you are looking at a commercial space it’s likely that you or your potential tenant will have invested in a pile of expensive equipment. Ensuring that the new space you are looking at has security to keep materials safe is a no brainer. Over and above keeping it all safe you must also make sure that likely equipment would fit. Not only fitting in the building itself but also fits in the entrances available. When looking at a commercial space it may be tempting to just focus on the main building and not fully consider sundries like balconies, awnings, patios, external sheds or buildings but these are all part of the commercial property depreciation and may cause you undue costs if they need to be repaired or torn down if they do not meet building codes.

The Detailed Value on Accounts that Provided

While we're organizing the inspection, professionals will let you know the information we need from you to complete the report. The basic information includes the legal name for the depreciation report to be made out to, whether you have made any additions to the property, the date you moved out if you occupied the property, your settlement date and any other information you may know about the property. We'll help you through the information gathering process and we can often find most of the information on your behalf. You're able to claim deductions on renovations by the previous owner. Ensure you are maximizing the return on your investment and claiming the most deductions to which you are still legally entitled. If the uncertainty of the future around negative gearing still leaves you wondering if a depreciation report will be valuable for your circumstances, just ensure the deductions reported for the 2016 financial year will be enough to offset the cost of the depreciation report.

Often this process includes searching for historical photographs, contacting sales agents and with common property we'll need to source the strata plan and calculate your strata entitlement. If your property is strata titled, you're able to claim deductions over the common property such as lifts, basements, fire services and much more. Once completed, the report will be issued to you as a PDF showing the depreciation deductions each financial year for 40 years. If you're provided your accountants details, we'll also send a copy of the depreciation report directly to them. This ensures they have a copy ready to go when it comes time to preparing your tax return. For a property that is positively geared, claiming for depreciation helps to reduce the profit made on the investment in a year, and to pay less tax. Consider an out of line or distressed sale, and these are common with commercial properties. Or even a house sold to a family member cheaply. Some accountants may argue on this but schedules where the deductions were higher than the purchase price.

The estimated the construction value of the property, and we didn’t care what someone paid for it. If you bought a brand-new shopping center for ten million but it cost eleven million to build then good for you, but your purchase price didn’t change the construction cost. The accountant maybe wasn’t comfortable using just an estimate, but we stand by it and are called upon as expert witnesses in court due to our expertise in this field. You can see the results of those cases as public record. Any change to negative gearing law will not change the ability of these investors to claim for depreciation and to reduce their tax liability. the information we've sourced from our research and the property details and specifications from the inspection and complete the depreciation report ensuring that all items that qualify for a 100% deduction are itemized as well as low cost & low value pooling assets. It's our job to maximize your depreciation deductions and you can rest assured that we're experts at maximizing deductions.

The Confusion of Low Cost Assets

Every day we are fielding questions from investors and their advisers who are unsure if they should be claiming investment depreciation on their property since the new legislation was passed.  What is clear is that there is still much confusion online in forums and chat rooms, and sometimes from advisers themselves.  We seek here to put a few myths to bed and it shouldn’t matter how recently you bought your rental property. Even if it was just bought a couple of weeks out from the end of the financial year and it’s always worth getting a depreciation schedule done sooner to be prepared. Whether you’ve owned the property for only three days or three months on June 30 – you are still entitled to claim for immediate write off, low cost assets, as well as pro-rate of the building and large assets. You’d be surprised to find out many investors claim up to $3,000 for brand-new properties and more for just the first week of holding their investment depreciation property.

Immediate write-off assets are anything you’ve bought brand-new for the building that was under $300 – things like smoke alarms, door locks, exhaust fans and so on. The new legislation will only affect residential investment properties owned by individuals or personal structures such as self-managed superannuation funds or trusts are affected.  Investment properties that are owned by corporations or large company’s investment trusts remain unaffected. If you have purchased an Australia investment depreciation property in a company, contact us today for a depreciation estimate and obligation-free quote. Investors who purchased their investment properties after May 9, 2017 are still able to claim for capital allowances and depreciation of their investment property. For purchases of brand-new properties, nothing has changed in the new legislation.  All structural (Division 43) and Plant and Equipment assets (Division 40) are still claimable as they were previously.  Not only do these brand-new properties generate the highest amount of depreciation to deduct each year, but with plans and total construction costs provided we can provide full Australia investment depreciation schedules for these properties at a discounted rate.

You are will not be affected by the budget announcement and new legislation. A principle called “Grandfathering” applies to you, meaning that the legislation that was in place when you purchased your investment property will continue to apply for you, so you may continue to claim your depreciation as you have previously.  Our schedules provide full reporting for Division 43 Capital Works (for 40 years), plus itemized asset depreciation for each plant and equipment asset across their effective lives, maximizing the deductions for every investor. You are still able to claim all the deductions that were claimable under the previous legislation.  The updated legislation only refers to those second-hand assets acquired in the purchase of an investment property so the brand-new properties with new assets are not affected by the changes.  Brand new properties generate substantial Australia investment depreciation deductions for investors. Unfortunately, not many people are aware that you are able to make these claims – including some accountants - so if you have just purchased an investment property, it is well worth checking what depreciation deductions you would be entitled to this year.

A Qualified Authority in Maintaining Financial Aspects

Quantity Surveyors have increasingly become more recognizable as a profession from architecture and civil engineering since the year of 1836, yet they are not immune to the many challenges within the environment. The construction industry appears to have always been highly critical of the works carried out by this profession, leading others to even question the importance of the role. By the middle of the 20th Century, Quantity Surveying continued to evolve into a much more recognizable profession in the construction industry. Quantity surveyor had developed into a traditional role of maintaining all financial aspects of each project for both the clients and the builders. With the ever-changing environment, this field has adapted to suit each marketplace as time has continued to move forward. Today, Australia quantity surveyor  functions involve a vast array of attributes, these allow the profession itself to stand far away from something just as simple as ‘counting bricks.

Due to the vast array of services that this job offers, the business is not just focusing on the construction industry but also finance. This is elevating the involvement in other industries as time is progressively moving forward, such as property management as an example. Like other businesses, the demand for qualified professionals’ increases as the industry is expanding, so in recent years the demand for quantity surveyor has been at a high. Despite originally only having three major employers, quantity surveyor today could mean you work for a local authority, housing association or government department. Or you may work within the private sector of a building contractor, property company, civil engineering or architecture firm. The name Quantity Surveyor is derived from the original need for the profession to prepare the bill of quantities from plans, describing the material, items of work and the quantities needed. The word quantity implies amount, numbers, extent, mass, size, magnitude or measure. Surveyor denotes inspector, examiner, reviewer, evaluator or assessor. For this profession to not become extinct, over the years, recent practice has shown that the industry has focused on implementing ‘value engineering’.

This will then improve the overall value of the product or service that they are providing to clients, helping the client receive more for their money. For any industry to succeed, it needs to adapt to the surroundings and evolve with the time. The paths into landing a role a Australia quantity surveyor  has increased over the years, from university degrees to apprenticeships to even gaining a role as a junior or trainee quantity surveyor. The opportunities will only continue to increase as the industry continues to grow. Since the dip of the recession, an incessant demand for housing is encouraging growth within the market. At the same time, the advent of new technologies and new building methods has the potential to transform construction, from the way in which buildings are designed to the materials used to build them. With the advent of ever-smarter new forms of technology, Quantity Surveyors are having to adapt to keep up- and many are now taking advantage of these new inventions to work smarter and more flexibly than ever before.

The Affecting Method Growth into Something in Return

Commercial, residential, apartments, houses, duplexes; the potential in real estate is endless. There’re different real estate strategies that investors can use for any of the above. Each approach has its pros, cons, and methods that will build your portfolio into something amazing. You put a lot of work into finding a good piece of real estate, so it should work for you in return. Capital growth means you hold onto the home for a while, expecting it to make a nice profit when the time comes to sell. The resale price is affected thanks to area profile like access to schools, public transport and shopping. Investors using this strategy must have patience if they want to see the benefits. Working a house depreciation schedule into this will also help you net a larger profit. When the building depreciates, so does the cost base. Lower cost base (aka lower worth at resale) means less capital gains tax to pay.

It’s oh so tempting to buy in a capital city, but it costs more money and there’s often too much competition. The Australian apartment glut means investors are snapping up properties in bulk, almost suffocating each other in one suburb or just one building. Popular growth areas aren’t just suburbs in the city. Regional, outlying house depreciation is great for negative gearing, with the eventual goal of a profit at resale. This is because investors see the potential in the homes and the general area and have the patience to wait for the right time to sell. Having a depreciation schedule isn’t anyone’s idea of a ‘must-have accessory’ but it pays off in more ways than one. Seasoned investors and business owners with several properties under their belts know well the bragging rights they’re afforded when they’ve got the depreciation schedule in their hands. Tax time is the bane of most people’s existence. Organizing account information, making sure expenses are correct and the like is a pain if you’re not organized. When you own investment properties, or brick-and-mortar stores, the amount of work increases substantially.

This is where the depreciation report comes in. After the quantity surveyor does their walk through and the company mails you the report, a large bulk of the tax reporting for those properties is complete. You don’t have to triple-check bills or receipts for a long time unless you do renovations. A house depreciation report isn’t glamorous, but its benefits are worth their weight in the size of your tax return. You can feel a little smug having less work on your plate organizing expenses. Your accountant has the report, and you have the time to run your business. This means, though, you must act quickly. As soon as you settle the deal with the real estate agent, get the house depreciation Australia experts in to assess. They prefer to see everything in the condition you bought it to make an accurate report. If the previous owners made renovations, then that’s a bonus as you’re eligible to claim their work in the report.

Tax Deductions in Australia

In Australia, there are two types of tax depreciation:

Capital Works deductions for buildings and structures (Division 43),

Capital Works deductions for buildings and structures vary depends on the building type and built year. Residential properties built after 18 July 1985 can be claimed at least 2.5 percent of the original building cost for Capital Works deductions for buildings and structures. The building cost includes actual costs incurred on the whole construction process not only the builder’s Contract amount plus all variations, but also the design fee, interest paid, Council’s fee or any cost outside of the builder’s contract, such as fencing, drive, mailbox, clothes line, floor covers, hard landscaping and others. Construction expenditure does not include the value of an owner contribution such as professional fee and labor. For instance, if the owner chose to paint the building himself, then the owner can only claim the material part. The owner’s own labor or time is ignored by the law. Moreover, the cost of acquiring the land and the costs incurred preparing the site for construction are also specifically excluded. Keep in mind that any renovation, extension or alteration completed after 27 February 1992 is also depreciable under a new 40-year cycle regardless of the building’s age.

Plant and Equipment allowances (Division 40/42).

Plant and equipment allowance has no time limit and can be claimed at any age of the building such as items. However, their depreciable ratio varies depending on the building type. For example, carpet in a commercial building can be depreciated quicker than one in a residential building even if they are the same. The reason for this is typically, the carpet in a commercial building would wear out quicker. Plant and equipment allowance takes the majority of the annual depreciable entitlement, particularly on old buildings. They include not only assets fixed to the building structure such as floor covers, hot water systems, appliance, water pumps, window curtains, blinds and others but also free-standing assets such as loose furniture and fit outs. They are depreciated at an accelerated rate that is in excess of the flat rate utilized in Division 43. Moreover, second-hand plant and equipment are also depreciable.

ATO uses two tax depreciation Australia schedules:

1. Prime Cost: This method deducts an identical amount each year for the useable life of the asset. The formula is: Asset Cost x (Days Held/365) x (100%/Effective Life). The ‘Days Held’ component allows you to allocate a portion of depreciation to items purchased mid-financial year.
2. Diminishing Value: This method allocates more depreciation at the beginning of the schedule. The formula is: Base Value x (Days Held/365) x (200%/Effective Life). Base Value replaces Asset Cost, and is recalculated each year by deducting the depreciation from the previous year’s Base Value.

Claiming tax depreciation Australia on your business assets is generally compulsory. Moreover, you can decide not to depreciate a particular asset. Once you've elected not to depreciate an asset you can't claim tax depreciation on it in years to come.

Commercial Assets Deductions

Depreciation is a known concept in accounting but is also one of the major characteristics of direct commercial property investment. Commercial and residential building assets can be depreciated either over 39 years straight-line for commercial property, or 27.5-year straight line for commercial property. Certain land improvements can be depreciated over 15 years, with certain personal property depreciated. The ATO makes allowances for the tenants to be able to claim some depreciation for assets. Commercial tenants are able to claim Gold Coast commercial property depreciation on any fit-out they add from the starting date of their lease. This can include assets such as desks, blinds, shelving, carpet, vinyl, firefighting equipment and security systems. If a commercial tenant removes items at the end of their tenancy and disposes of the item, they may also be able to claim the remaining depreciation for assets removed and scrapped when they vacate the property. If the owner of the asset decides to on-sell items installed or keep them for future use, this does not apply. With low value pooling the ATO is essentially making the task of depreciating multiple, low value items easier. Once you group assets in the low value pool you no longer need to work out their decline in value separately which only one calculation for the pool is necessary.

The ATO specifies ‘low cost assets’ and ‘low value assets’ as eligible for the low value pool:

• Low-cost assets: An asset with an opening value of less than $1,000 in the year of acquisition. Once you choose to create a low-value pool and allocate a low-cost asset to it, you must pool all other low-cost assets you start to hold in that income year and in later income years
• Low-value assets: An asset that has a written down value of less than $1,000 – ie it costs more than $1,000 in the financial year of acquisition, however after the previous year (or years) of depreciation its value falls under $1,000. You can decide whether to allocate low-value assets to the pool on an asset-by asset basis. To make it short, as assets depreciate and qualify, you can add them as required.

There are some specific rules about the operation of low value pools, so it is advisable to seek professional advice to ensure you remain on the right side of the law when it comes to the investment Gold Coast commercial property depreciation offers.

It is clear that furnishing a commercial property will generate much higher commercial property depreciation such as furniture. Some developers include packages with new properties such as white goods and furniture that can result in generous depreciation allowances for investors in the first year. This is certainly a point to consider if you are weighing up various apartment investment opportunities. Moreover, remember that furniture suffers wear and tear, and if you are holding a property for the long term the advantages of depreciation deductions may be far outweighed by the cost of eventually replacing these assets.