It’s that time of year when families gather around the dining table to dig into a Christmas roast, peel some fresh prawns to dip in some thousand island dressing or indulge in a sizzling barbeque in the backyard.
While an investment property is likely to be far from the minds of most investors at this time of year, it is still a good time to think about how many of the items you’re using to make this Christmas a safe and memorable one are also being used by your tenants in a similar fashion.
To get into the festive spirit, we wanted to take a look at some of the depreciable assets used at Christmas time and why they are not only important to helping your tenants enjoy some seasonal downtime, but also to helping investors improve their cash flow all year long.
An Australian Christmas will often mean one thing – hot weather. Like their landlords, tenants will want to stay cool over the holidays.
Most properties are equipped with either split or ducted air conditioning that can chill an Australian heat wave down to a few levels short of becoming a white Christmas. These assets can also enable the owner to claim substantial deductions*.
If an owner is planning on installing an air conditioner in their investment property, they should be aware that split system and ducted air conditioners each depreciate over a different effective life and depreciation rate.
Split system air-conditioners have an effective life of ten years and diminishing value rate of 20 per cent, while ducted air conditioning units will depreciate over fifteen years at a rate of 13.33 per cent.
While ducted is obviously more expensive to install, if an investor were to only spend $5,000 on cooling, it is the split system air conditioner which would earn them the greatest depreciation deductions in the first financial year. At a cost of $5,000, an investor can claim $1,000 in deductions on a split system and for a ducted air conditioning unit for the same price they could claim just $667.
All those ovens around the country which are carefully roasting Christmas hams are also deductible assets for investment property owners. Using the diminishing value method, an oven worth $1,019 will result in $170 worth in deductions in the first financial year for the owner *.
Be mindful that these items also need careful attention. Next time you’re whipping out the gloves and oven cleaner think about when the last time your Property Manager performed an inspection and may have checked the oven.
For Property Managers, the oven often gets overlooked during regular inspections and it can be particularly hard for tenants to keep it clean if they plan on vacating the property later if it has not been done on a regular basis.
Consider whether getting a professional oven cleaner in is an option, there are a number of providers who can do so and any maintenance costs involved in doing so are also a deductible expense for the owner of the property.
As ovens have an effective life of just twelve years, if the asset is getting on the older side, it could also be time for a much-needed update.
Barbeques are also an asset which often gets forgotten and may only be used seasonally by tenants.
Although not as often found in rental properties, freestanding barbeques which may get exposed to the elements wear out quickly, with an effective life of just five years. Consider getting a freestanding outdoor garden shed to keep it out of the weather between use.
Using the diminishing value method – a freestanding barbeque which set an investor back $4,500 would result in $1,478 in deductions *. If a barbeque is a fixed asset, remember that structural items are claimed as capital works deductions, meaning the structure of the barbeque itself will be claimed at a rate of just 2.5 per cent per year. The sliding trays and cookers within the barbeque can be claimed however at a diminishing value rate of 20 per cent over an effective life of ten years.
Building that freestanding outdoor garden shed might cost $855 but it’s well worth protecting those garden assets when you consider this will result in $160 in deductions in the first financial year also.
While Christmas is mostly about sharing and happiness, unfortunately, the season can also bring the unwanted attention of thieves.
If you haven’t already, it is worth thinking about installing a security device into both your home and your investment property to keep things safe and sound.
A full closed circuit television system so tenants can keep an eye on their property whether they are at home or even away during the holidays could cost the owner of the investment property $1.550 but also result in $775 worth in deductions in the first financial year*.
In most states across Australia, smoke alarms must be fitted and comply with standards set by the Building Code of Australia. Most homes will have two devices which should be tested regularly.
Landlords should give tenants notice before they come to fit or update existing smoke alarm systems and be particularly considerate if you are planning on doing so around the holidays.
These little devices which no doubt will emit beeps to let you know if that Christmas turkey is over baked are also deductible for the owner. As they should cost under $300, the owner can claim these items as an immediate deduction. Smoke alarms costing around $145, for example, will see the owner receive this same cost as a deduction in the first financial year after installation.
Swimming pool assets
While the kids are creating waves by bombing the deep end of the pool over the break, remember the pool of an investment property needs particular attention all year around.
Chlorinators and filtration assets all wear out so once a year think about checking these devices in the lead up to the summer season to ensure they are in working order. Both these and other cleaning assets such as a creepy crawly are also depreciable*.
Chlorinators and filtration devices have an effective life of twelve years and using the diminishing value rate will depreciate at 16.67 per cent. Cleaning assets have an effective life of seven years and using the diminishing value method will depreciate at 28.57 per cent.
As a landlord, it also is a good idea to ensure that the pool fence (a structural asset claimed as a capital works deduction) is checked regularly. Pool fences must meet current council standards to ensure that young children don’t crawl or climb through the barriers year round.
Best wishes to all for a safe and Merry Christmas from all the team at BMT. May the New Year be a happy and prosperous one.
* 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 7:30 pm 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.
This article, “Celebrate Christmas and remember your tenants will too”, was provided by BMT Tax Depreciation for Chan & Naylor.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.