With tax time fast approaching, here are six depreciation questions your clients should be asking to ensure they’re getting the most from their investment property.
What are some common deductions I’m entitled to as a property investor?
As a property investor, you’re entitled to a range of tax deductions. These will help lower your taxable income and make owning an investment property more viable, particularly if you own a negative cash flow property.
Some of the tax deductions available to investors include deductions on council rates, the interest from a mortgage, property management fees, land taxes, strata fees, maintenance costs, insurance, accounting fees and depreciation.
Of these deductions, depreciation is the most often missed. This is because it is a non-cash deduction. That is, the owner does not need to spend any money to claim it.
In fact, research has shown that 80 per cent of property investors are missing out on the depreciation deductions they’re entitled to.
However, given that investors can claim an average of $5,000 – $10,000 in deductions in the first full financial year alone, this is a deduction that should not be overlooked.
A BMT Tax Depreciation Schedule 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.
I’ve bought an investment property in the last few months – can I make a claim this tax time?
If you haven’t owned the property for long and it’s only been income producing for a few months in the last financial year, you will be able to make a partial year claim.
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.
A BMT Tax Depreciation Schedule makes a partial year claim like this easy for you and your Accountant.
Do I need to update my tax depreciation schedule?
If you’ve made any updates to your property in the past financial year, such as a renovation, it’s a good idea to get in touch with your Quantity Surveyor to see if you will require an updated depreciation schedule.
It’s important to be aware that there is a difference between a repair and a capital works improvement as this will affect your claim. The cost of any 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 it is in your claim correctly.
An updated tax depreciation schedule may be required after a renovation to capture all newly installed plant and equipment assets or capital works expenditure.
Am I maximising the deductions for my property?
It’s one thing to be claiming deductions, but are you maximising them?
A Quantity Surveyor specialising in depreciation will be aware of all the techniques you can make use of to maximise and accelerate the deductions you’re entitled to.
As well as identifying assets that others may miss, they will make use of tools such as low-value pooling, scrapping and split reports to maximise the deductions you’re legally entitled to and put more money back in your pocket sooner.
Can my Accountant organise my depreciation deductions?
An Accountant should be able to recommend that you claim depreciation, organise a schedule on your behalf or refer you to a Quantity Surveyor, but they will not be able to estimate construction costs or provide you with a tax depreciation schedule.
Only a qualified Quantity Surveyor can do that.
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. Only a tax depreciation specialist such as BMT can be relied on to maintain detailed knowledge of all current ATO Tax Rulings relating to depreciation.
Once you have a Tax Depreciation Schedule completed, your Accountant can input these deductions into your annual income tax return.
I’ve only just found out about depreciation. Does this mean I’ve missed out on past years’ deductions?
One of the common depreciation questions by investment property owners is about a property that they have owned and rented for a number of years but have not claimed depreciation deductions for.
The ATO allows tax returns to be easily adjusted for two years after the initial submission. This enables property owners to recoup some of the deductions that may have been missed.
It is important to note that a separate application will need to be submitted for each financial year requiring an amendment. Income, depreciation and other claims made will impact the outcome of each tax return.
In the situation where an investor has missed or not maximised their claim in previous years, the depreciation schedule can be tailored within the eligible years.
A note for Accountants
June 30 is almost here. Now is the time to help your clients with their depreciation questions and to help them claim thousands of dollars in deductions.
BMT understands that tax time is a busy period, particularly as you focus on the important task of completing your clients’ annual income tax assessments.
By registering to MyBMT you can request access to a client’s updated schedule straight away.
With MyBMT you can manage the depreciation details of your clients’ investment property in one central location.
You can also use MyBMT to request a quote, see how your clients’ schedules are progressing, download completed schedules in CSV and other formats, request an update to a schedule, view research and more.
Register at mybmt.bmtqs.com.au.
This article, “Six depreciation questions to ask this tax time”, 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.
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.