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 ten tips to help you get the most from your investment property this tax time.
Make sure you correctly claim renovations or improvements to your property with the help of a Quantity Surveyor.
1. 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 is a non-cash deduction; that is, the investor does not need to spend money in order 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.
2. Order a tax depreciation schedule
A 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.
3. Amend previous tax returns
Many people don't know this but investors can amend two previous tax returns to recoup any missed deductions.
4. 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.
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 is 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.
6. Do you only lease your property 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. A formal tax depreciation schedule makes a partial year claim like this easy for you and your Accountant.
7. 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 and this will put more money back into your pocket sooner. Read more about how this works.
8. Claim for renovations and improvements
There is 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.
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9. 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. 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.
10. The BMT guarantee
Be confident when ordering your schedule from BMT Tax Depreciation. BMT offers a guarantee to all clients that if they can’t find double their fee in deductions in the first full financial year, they won’t charge for their service.
Article provided by BMT Tax Depreciation. Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax 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. To learn more visit www.bmtqs.com.au/budget-2017 or read BMT’s comprehensive White Paper document at www.bmtqs.com.au/2017-budget-whitepaper.
To order your depreciation schedule and start claiming your depreciation entitlements back, apply online or call 1300 728 726.