MUCH has been said about the future of workplaces since COVID-19 forced some major changes to office life as we know it, kicking flexible work practices into gear.
At this stage, no one really knows how offices will look in the future as uncertainty still abounds, but we do know that workplaces will undergo (potentially lasting) change.
Health and safety will be a huge factor, with social distancing requirements and even temperature testing being introduced in some buildings, but flexible working arrangements will also determine how future offices will look.
“The most notable was when almost overnight the office-bound workforce globally relocated to their homes,” she says.
“The digital transformation of our organisations was achieved not through management strategy or a new technology solution, by the realities of this virus.
“For the first time in modern history working from home became the norm and even ushered in the three-letter acronym to describe it: WFH. And it is here to stay.”
In the future it is likely we will see our office spaces change to accommodate more flexible working styles and less people in them all the time, says Fell, with most workers in this knowledge economy having more of a regular opportunity to work a day or two from home.
“Our national survey amid the COVID-19 crisis showed that 69% said they were as, if not more, productive when working from home than they were at their office.
“It also showed that far from being a temporary response to a global pandemic, 78% said that working from home will become the new normal.”
Workplaces will also change to become COVID-safe, enabling social distancing and safety and health measures.
Property Council Chief Executive Ken Morrison says the Property Council has worked closely with Safe Work Australia on guidelines for office buildings, including how to manage lifts, common areas of buildings and change room facilities for cyclists and people running or walking to work.
“There is now comprehensive advice available to help building managers and businesses to make their workplaces COVID-safe. Our members have been proactively addressing these issues to provide a COVID-safe environment for their tenants and their workers.
“As people are able to return to their offices, we believe they will do so in increasing numbers depending on their local public health restrictions.”
Offices are here to stay
With more people working from home it is likely we will see less demand for full utilisation of office spaces that has been the norm over the last few decades, says Fell. But that doesn’t mean offices will be gone entirely.
“The office will still be important in the future, but likely for collaboration, creativity and social interaction – the parts of work that are harder to achieve when workers work remotely.”
While there are some who say COVID-19 is the death of the CBD or the office building, says Morrison, and we may see some tenants provide more of their people with flexible working arrangements, at the same time they may also need more space in their offices to accommodate physical distancing.
“There may be some changes to the way we configure our offices, but they will still be a very important part of our working lives.”
While Australians have shown great versatility in making the shift to working from home, many are keen to get back to their workplace and reconnect with their work colleagues in person, adds Morrison.
According to an ABS survey recently, 86% of working Australians were somewhat comfortable in resuming attendance at their usual workplace, he says.
“There are lots of positive benefits to working in an office including the opportunities they present for critical ingredients for business success, including collaboration, creativity, innovation, learning, mentoring and developing and sustaining team culture.
“Many businesses have been able to manage remote working so well because of the close internal and external networks that their people developed in the pre-pandemic. Businesses have been surfing off the previous benefits of working in offices.
“It’s also a practical issue – not everyone can do their jobs as safely or efficiently from home, so we need to make sure that our CBDs and offices are open and working again to support those businesses which need a physical premises for their staff.”
LJ Hooker Commercial Managing Director Mathew Tiller says while there will be some businesses that see COVID-19 workplaces changes as a way to reduce costs and move some work online, many businesses will be unable to reduce their office space as they will need to ensure social distancing requirements are maintained.
He says those in the former category are also unlikely to do away with the office entirely.
“They will still need a central point to meet; a place where employees can catch up and engage with others.
“Working from home is great in terms of not having to commute to the office, but human interaction is also still very important for culture of work and mental health of employees. It also cultivates ideas and strategy.
“There will always be a need for office space; it will just be used differently and for different purposes.”
Tiller says the location of offices may also change, with many businesses likely to consider moving from the CBD to a suburban office closer to where employees live.
What do I see when I look into my crystal ball?
From an Investor Viewpoint:
In my view office buildings will become more spread out over time. We may find more suburban co-work spaces in the future. People will still want to physically interact, albeit less often.
I can see some CBD Offices being converted to residential over time.
I can’t see too many new office buildings being given the green light in the future.
Smaller office spaces may become more in demand as companies downsize to reflect the new working from home reality.
If you don’t own an office and are thinking of having a small hub where workers can get together and share space, now might be a good time to start looking.
From a Tenant Perspective:
If you are a tenant with a lease that’s about to expire, now could be a good time to negotiate.
You may have a clause that allows you to “re-set” the rent based upon an independent market valuation, rather than an automatic increase or linked to CPI.
I expect to see a lot of sub-leasing space coming onto the market over time.
As a rule of thumb, businesses require roughly between 8 and 12 square metres of gross space per employee. With more employees working from home, companies could in effect get two employees in that space on a co-sharing basis, thus reducing the need for office space in the future.
There is a common misconception in the property market that you cannot claim depreciation on old properties. This is wrong, and I can prove it!
The origin of this myth centres on the fact that you cannot claim building depreciation on residential properties where the construction commencement date is before 1987.
This is a true statement and put simply means that you can’t claim depreciation on the structure of the building – the brickwork and concrete – if it was built before 1987.
But here’s the rest of the story. While it is true that the government has disallowed claiming depreciation on previously used assets, all properties built after 1987 will still qualify for the building allowance – making it worthwhile to order a depreciation schedule.
Further, it is pretty rare these days that when we inspect a property built before 1987, there hasn’t been some form of kitchen or bathroom renovation carried out – and the renovation resets the start for those works and thus can be claimed by the incoming property investor.
The best way to test how much you can claim on an old property is to use the Washington Brown depreciation calculator. Here you can crunch the numbers on your property and see how much you can claim. All you need to do is answer some simple questions about the property in question.
This calculator has now been updated to reflect the changes announced in the 2017 Budget.
Try Washington Brown’s proprietary Property Depreciation Calculator
This is the first calculator to draw on real properties to determine an accurate estimate. It allows you to work out the likely tax depreciation deduction on your investment property.
This is the only calculator in Australia that enables you to enter a purchase price and get a depreciation estimate as a result. It took me four years to build, because it relies on real life data and is very complicated to say the least.
When trying to figure out how to invest in property with little money, many new investors look toward discounted properties. However, there are some risks you must keep in mind.
Foreclosure is an ever-present risk for Australian homeowners. Failure to meet your mortgage repayments could result in your lender taking possession of your property. It’s an issue that affects thousands of people every year. In Victoria alone, almost 1,000 people had their homes repossessed between 2014 and 2015.
Foreclosed, or discounted, properties present an opportunity for property investment for beginners. In fact, many make discounted homes their first investment property in Australia.
However, buying a foreclosed home is not always simple. Here are six things you must watch out for when purchasing a discounted property.
Issue #1 – Your Own Finances
When a lender forecloses on a property, they take ownership of it. As a result, you buy discounted properties directly from the previous owner’s lender.
What does this mean for you? For one, you can expect the lender to want to get the transaction over with as quickly as possible. You’ll have to deal with a shorter settlement period, and the lender will want to see that you have your finances in order. Furthermore, having pre-approval on a home loan isn’t always enough. You need to have more concrete evidence that you have the money to spend.
Make sure your finances are in order before trying to buy a discounted investment property in Australia.
Issue #2 –The Quick Settlement
As mentioned, you’ll deal with a quick settlement period when buying a discounted investment property in Australia. This is because the lender needs to get the property into somebody else’s hands. The longer that takes, the more time the lender has to wait before recouping their costs.
Prepare yourself for this ahead of time. Make sure you have a solicitor in place who will prioritise the transaction’s paperwork for you. Furthermore, work closely with your own lender to ensure nothing can go wrong with your mortgage application.
Failure to meet the conditions of the settlement could lead to you paying penalty fees. Suddenly, your discounted property costs more than you expected.
Issue #3 – The Need to Make Repairs
Foreclosures are not pleasant situations. The previous owners will have vacated the property quickly. They will also have been going through some financial difficulties. As a result, maintaining the property would not have been a priority.
Expect to make repairs to several fixtures and fittings. It’s also likely that you’ll have to clean up before you can start using the house as an investment property in Australia. Worst case scenario, you’ll have to renovate extensively.
Factor this into your budgeting before you buy the property. You won’t be able to use your discounted property to generate an income if it’s in a state of disrepair.
Issue #4 – The Effects of Unruly Previous Owners
Those undergoing foreclosure will feel a lot of stress. After all, they’re facing financial issues and the prospect of losing their home.
In some cases, the previous owner may have lashed out against the property itself. There are reports of investors buying discounted properties, only to find extensive damage. You become responsible for fixing this damage as soon as you take ownership of the property.
You can avoid this problem if you arrange a building inspection. Have an inspector ready to go as soon as you make contact with the lender who owns the property. This ensures that you find any deal-breaking issues before the transaction reaches settlement.
Issue #5 – The Location
Buying a discounted property doesn’t mean you should forget about the location. Checking the property’s location is one of the property investment basics.
Take some time to visit the area, so you can get a feel for the neighbourhood. Also, remember that the pictures you see aren’t fully representative of the property. The seller uses those images to make the property look as attractive as possible.
As a result, you need to visit the property yourself at least once before making your offer. If the location isn’t suitable, no discount is worth the risk.
Issue #6 – Your Research
You may forget to do your research in your rush to buy a discounted property. The faster settlement doesn’t help with this. You have a lot of pressure on your shoulders to get the deal done quickly.
Some investors use this as an excuse to research less thoroughly. Don’t fall into that trap. You need to know if the property has the potential to contribute to your portfolio.
Examine the usual data. Check to see how local property prices have fluctuated over the last few years. Have a plan in place for what you’ll do with the property once you have it. It’s also worth checking tenant demand, assuming you wish to use the property to generate a rental income.
The Final Word
Buying discounted properties could help you to make a lot of money as an investor. However, you shouldn’t go into any deal without checking all the issues.
You also need to consider how you’ll claim deductions on your new property. Washington Brown can help, so contact us today to find out how much you can claim.
Your Investment Property in Australia Doesn’t Have to be Pre-Owned
Whether you buy an old or new property is one of the key decisions you’ll have to make when buying an investment property in Australia. Both have their advantages. With an old property, you can often secure a great deal, plus there’s potential to renovate and add value. You can also feel more certain about how the property will perform
A new investment property in Australia may not come with those assurances. However, you shouldn’t discount them outright. In fact, investing in new homes comes with several benefits that may earn you more money.
Benefit #1 – Higher Capital Growth
As we all know, location is important when buying an investment property in Australia. Choose the wrong location, and you limit the capital growth your property will enjoy. Buying an old property in a desirable location practically guarantees you’ll enjoy capital growth. That’s a given.
But many don’t realise that the same applies to new properties as well. In fact, a new property may enjoy greater capital growth than an old property in the same location. Newer properties tend to enjoy higher levels of demand than old properties. Buyers and renters want the latest mod cons, which they won’t always get with an old property. This increased demand makes the location more desirable which contributes to increased capital growth for your property.
Benefit #2 – Construction Quality
Have you ever bought an old investment property in Australia, only to find that you have to spend thousands of dollars on renovations? It’s not an uncommon problem. Properties wear out over time. Fixtures need replacing and appliances need maintenance. This is all money coming out of your pocket.
Yes, you can claim tax deductions in Australia for some of this work. But you may not want to deal with the hassle.
A new property allows you to avoid those problems. There are stringent regulations in place to ensure all newly-built properties meet certain standards. They have to be built to a certain quality level, plus they must be energy efficient. This means you can feel certain that the construction quality of a new building will be high. As a result, you don’t have to spend more money on making improvements.
Benefit #3 – Lower Prices
A lot of people will tell you that it’s almost impossible to get a new property at a low price. Developers know the value of their properties and won’t sell for anything less.
This may be true when trying to buy a new property after the developer has already sold most of their stock. However, it discounts the potential savings you could by getting in early.
Keep your ear to the ground so you can find out about upcoming development work. If the houses are in a desirable location, you should try to get in as early as possible. Many developers sell their new properties for less than they’re worth to investors who make early offers. If you’re among that group, you’ll have a great property that cost you less than it should have.
Benefit #4 – You Attract More Tenants
We touched on this point earlier, but it’s worth coming back to. Tenants want properties that offer the latest appliances. They also want to pay as little as possible on their utility bills.
Buying an old investment property in Australia sometimes means that you can’t offer these things to your prospective tenants. The fixtures and appliances may be out of date, which lowers the demand. The property may also not be energy efficient. In the end, you have to charge less rent than you may wish so that you can attract tenants.
That shouldn’t be a problem with a new property. The developers will have installed modern fixtures and appliances, which attract more tenant applications. You don’t have to pay for renovations, plus, you can charge higher rents.
Benefit #5 – You Get a Blank Slate
Let’s assume you aren’t buying the property as an investment. Instead, you want to live in it yourself. If you buy an established, older property, you’re going to have to deal with the previous owner’s choices. You may have to spend a lot of money to change things until they’re just the way you like them.
When buying a new home, you have more choice. For example, you can discuss your preferences with the developer to ensure the home is built to meet your needs.
The prospect of having a blank slate appeals to many buyers. Plus, you get to enjoy the other benefit’s we’ve mentioned if you do decide to take on some tenants.
The fee you’ll pay for a depreciation schedule will vary. For example, you may pay anywhere between $275 and $800 for the report. This is a fairly standard price for an established residential home. All these properties aren’t brand new. This usually means you’ve purchased it from another investor or a former owner-occupier.
What causes this variance in price? It usually comes down to the quality of the service that the quantity surveyor provides. Paying less may mean that you save money in the short-term. However, it could also result in you claiming fewer tax deductions for your investment property in Australia.
To find out exactly how much a depreciation schedule for your own property will cost – request an obligation-free quote from our tax depreciation specialists here.
The Timeline Process
You’ll need a depreciation schedule for any established investment property in Australia. This allows you to create a timeline that contains details about the property’s history. These details usually include information about the property’s renovation work. Either you or the previous owner may have carried out this work. It will also mention the cost of that work, along with the completion date.
Your surveyor does this so you can assign a new depreciation life cycle to your second-hand assets. However, you can only do this on assets in a property that you purchased before the 2017 Federal Budget. You may not be able to claim tax deductions on the plant and equipment within a property that you bought after May 9th, 2017. The good news is that deductions on the structure of your property are unaffected!
The purpose of your timeline is to show what tax deductions in Australia you can claim. It will also create a schedule for these claims. This allows you to maximise the depreciation of your second-hand assets.
What Do I Get at the Lower End of the Scale
Let’s assume that you have decided to work with a quantity surveyor who only charges $300. That’s a few hundred extra dollars in your pocket, but the schedule you receive may not be as detailed as you would like.
For example, most surveyors at the lower end of the price scale don’t usually provide the following:
The option to use low-value and low-cost pooling to increase the amount you can claim
Completion of additional searches that would have helped to find approved works by previous owners that you can claim for
Full itemisation of the individual assets contained in the property
Adjustments of the effective lives of your second-hand assets
Furthermore, you may find that a cheaper surveyor does not have the relevant skills or experience. As a result, you don’t get the most out of your assets. You’ll still get a depreciation schedule. However, it won’t allow you to claim as many tax deductions in Australia as you may be entitled to.
What Do I Get With a More Expensive Surveyor
More expensive surveyors tend to provide better depreciation schedules.
You’ll receive all the following if you pay more for your depreciation schedule:
A completely accurate estimation of every tax deduction in Australia you can make
Access to more knowledge with regard to the latest tax legislation
Checks to ensure your depreciation schedule meets the Australian Taxation Office (ATO) requirements
A more reliable point of contact to ask questions
Such surveyors also have more experience, which they can use to your advantage. It’s unlikely you’ll present them with any scenarios that they aren’t familiar with.
What about Brand New Properties?
That covers any second-hand assets that you have in an established residential home. But what if you’ve bought a new property? These won’t contain any second-hand assets that need reporting on.
As a result, you can expect to pay less for your depreciation schedule. This is because most newly built properties come with more information. Your surveyor can use this to create more accurate estimates. They’ll have access to the costs of construction, floor plans, and, at times, even the value of the assets that came with the property. This means they don’t have to carry out the detailed inspections that they would to estimate the value of second-hand assets in an established home.
Even with this lower cost, you will still receive the same level of service. The depreciation report will apply the new assets the home contains to either an immediate or long-term pool. This ensures you can claim the maximum tax deductions in Australia on your property.
How Much Does a Depreciation Schedule Cost for a Commercial Property?
Prices may vary for commercial properties. After all, larger commercial properties require more work than regular-sized residential properties.
Schedules for small offices cost about the same as you’d pay for a residential report. However, the price may increase along with the size of your property. Even so, it’s worth getting a depreciation schedule. Not only will it help you with asset deductions, but you can deduct the cost of the schedule from your taxes as well.
On Friday 14th July, the Treasury Office released a draft bill regarding how depreciation deductions on a second-hand property can be claimed moving forward. They also invited interested parties to make submissions.
It’s complicated, to say the least, so I’ve tried to simplify this Bill and the key points. Here are my 9 Key Takeaways from the Legislation;
If you acquire a second-hand residential property after May 10, 2017, which contains “previously used” depreciating assets, you will no longer be able to claim depreciation on those assets.
Acquirers of brand new property will carry on claiming depreciation exactly the way they have done so to date. This is great news for the property industry and the way it should be.
We suspected this would be the case and I believe the property industry can collectively breathe a sigh of relief.
The proposed changes only relate to residential property. Commercial, industrial, retail and other non-residential properties are not affected in the slightest.
The building allowance or claims on the structure of the building has not changed at all. You will still need a Depreciation Schedule to calculate these deductions. This component typically represents approximately between 80 to 85 percent of the construction cost of a property.
The proposed changes do not apply if you buy the property in a corporate tax entity, super fund (note Self-Managed Super Funds do not apply here) or a large unit trust.
This is interesting and I suspect a lot more people will start buying properties in company tax structures.
If you engage a builder to build a house and it remains an investment property, you will still be able to claim depreciation on both the structure and the Plant and Equipment items.
If you renovate a property that is being used as an investment, you will still be able to claim depreciation on it when you have finished the renovations.
If you renovate a house, whilst living it in, then sell the property to an investor, the asset will be deemed to have been previously used and the new owner cannot claim depreciation.
Perhaps the most interesting point: Whilst investors purchasing second-hand property can now no longer claim depreciation on the existing plant and equipment, they will have the benefit of paying less capital gains tax when they sell the property.
How? Well, in summary, what you would’ve been able to claim in depreciation under the previous legislation, now simply gets taken off the sale price in the event you sell the property in the future.
Here is an example of how this will work:
Peter buys a property in September 2017 for $600k, included within the property was $25k worth of previously used depreciating assets.
As they were previously used, Peter can’t claim depreciation on those items.
Peter sells the property in 2022 for $800k, which included $15k worth of those depreciation assets.
Peter can now claim a capital loss of $10k ($25k-$15k) for the portion that Peter has not claimed in depreciation.
SUMMARY OF THE PROPOSED CHANGES
In my view, the Draft Bill could’ve been a lot worse for both the property industry and the Quantity Surveying professions.
It will certainly address the integrity measure concern of stopping “refreshed” valuations of plant and equipment by property investors.
It may, however, create a two-tier property market in relation to New and Second-hand property.
You can see the ads now “Buy Brand New – We’ve Got The Depreciation Allowances”.
It will still be just as critical for all property investors to get a breakdown of the building allowance & plant and equipment values so you can:
Claim the building allowance (where applicable) and
Reduce the CGT payable when selling the property by deducting the unclaimed Plant and Equipment allowances.
The Quantity Surveying industry, just like the property development industry just breathed a huge sigh of relief.
I believe this integrity measure could’ve been better addressed and will be making a submission accordingly.
But it wasn’t a bad ‘first run’ by the Government!
P.S. If you purchased an investment property prior to The Budget, and it’s been an investment property the whole time, you are not affected and you should get a depreciation schedule quote now.
Well, just like you claim the wear and tear of your car against your taxable income or the wear and tear of the desk in your office, you can claim the wear and tear of your property against your taxable income.
But the property must be income producing. You can’t do this on your residential house. Property depreciation laws vary from country to country. I feel we have pretty good depreciation laws in this country. In a lot of countries, you can’t claim depreciation. So we’re lucky in Australia.
In summary, any property depreciation you claim would reduce the taxable income by the amount of depreciation you claim.
Now there are two parts of a depreciation claim:
First part is what’s called the capital works allowance that relates to the building and the structure. It lasts 40 years. This is commonly referred to as the building allowance. Now the amount of the deduction is determined by the actual construction cost, NOT what it costs to buy the property.
And in order for you to claim this building allowance, the property must be bought after 1985 for residential properties.
The second part that we’re going to talk about is what’s called plant and equipment- division 40. It refers to things like ovens, dishwashers, carpets, blinds, and also common property like lifts, fire services, and ventilation systems.
Note: Deductions for plant and equipment items and the following information may only apply if you bought the property prior to May 9, 2017 – Read about the Budget changes here.
Now, the more of this stuff you have in your property, the greater the tax savings. Why? Because this stuff wears out quicker.
Now let’s get into some tips:
1. The higher the building, the higher the depreciation
Why? Because it has more of that plant and equipment stuff that I’m talking about and this stuff depreciates faster. It also has things like gyms, pools, etc.
2. Old properties depreciate too
You’ve already paid something for it. So while you can’t claim the structure of the building, you may be able to claim the ovens, the dishwashers, the blinds, etc. This is because the plant and equipment is based upon what you pay for it and the effective life of each item can be a benefit. That means that if the carpets is going to last two years, you may be able to claim it over for 50% each year.
And at Washington Brown we are so confident that we actually guarantee our results. So if we can’t get you at least twice our fee in the first year, we won’t charge you!
3. Buy items that actually cost you under $300
For instance, if I was going to buy a microwave, I wouldn’t buy one that costs $330 because I would have to claim it at 20% per annum. However, I’d buy one at $295 because I would be able to claim it immediately.
4. Sometimes furnishing your property can actually result in a greater depreciation deduction
Why? Because the furniture depreciates rather quickly compared to bricks and concrete. So putting things like dining tables, bedding and all that stuff into a furnished property can actually accelerate your claim to the point that if you were to buy $20,000 worth of furniture, you could possibly get a $10,000 deduction in year 1 alone! But you’ve got to be smart about this. You can’t furnish all properties as it really depends on the location. So, this tip does not apply to all properties.
5. The actual construction cost must be used
Now that’s not a tip, that’s in the law. But what we found lately is that there are a lot of properties out there that are actually being sold close to their construction cost – certainly in some areas.
For instance, a property is sold at the original selling price of $95,000 in 2004. Our client just paid $45,000 for it. The original construction was $52,000. Now, I don’t know any other way that you can get a deduction greater than what you pay for something.
6. Utilise the residual value write-off
If you were to renovate a property that was built after 1985, you should get a quantity surveyor out before you do the renovation so that we can put some values onto items that you are about to remove and you can get a written down value of those items and claim it immediately as a tax deduction.
So if you remove the kitchen, the light fittings, the shelf screens, etc., all that stuff can be written off if your property was built after 1985.
For instance, you bought a property that was built in 1989 and in that property there was a kitchen that was originally installed and you now wish to upgrade it. If you were to demolish now halfway through its effective life, you could get a $10,000 immediate tax deduction for it! However, just remember that the property needs to be income producing before you rip it out.
So the tip here is to get a quantity surveyor out before you renovate a post-1985 property.
7. Always use an expert
Quantity surveyors have been recognised by the Australian Taxation Office to estimate construction costs where the costs are not known. Accountants and valuers for instance, are not allowed to estimate costs unlike quantity surveyors. However, be careful as not all quantity surveyors specialise in this service, but Washington Brown certainly does.
Also, as far as I know, a depreciation report is the only tax deduction that can be subjective and open to interpretation skill. Every other tax deduction is based on what you pay for it.
8. You get more depreciation on a new property
Now let’s have a look at the difference between the depreciation of a new property versus that of a four-year old property. It’s very similar to the effective lives of the property, that in fact, you’ll be surprised. Now, most of the deduction within a property is actually related to the building allowance. However, you’ll definitely get more depreciation on a new property compared to a pre-1985 property.
9. Use the Washington Brown Depreciation Calculator
Now, this is a good tip. You can go online and check the depreciation available on your own property using our calculator, the first calculator that uses live data! You can check new versus old properties, get an accurate depreciation assessment, and the great news is that it’s free!
Now, here are some bonus tips:
Bonus tip # 1: Don’t use a builder’s depreciation schedule
Builders are good at building. They miss out items and they sometimes don’t understand that the design and council costs can be included. Let a quantity surveyor do the depreciation schedule for you.
Bonus tip # 2: The type of materials is a huge factor
If you renovate, you might want to consider the type of materials you are going to use. For instance, carpets depreciate over 10 years but the floor tiling will depreciate over 40 so it can add up.
As another example, various types of partitioning may yield varying depreciation allowances. Some depreciate a lot quicker than others.
Moreover, we have air-conditioners and fans as examples too where the depreciation differs…
The types of materials used may vary and in turn, may change the depreciation allowance you can claim. So it pays to consider the item you’re about to install.
Bonus tip # 3: You can claim renovation even if you haven’t done the work
If you buy property that was built in 1900 for instance, but was renovated in 1990 not even by you, you can still claim depreciation. You can claim the renovation cost even if you didn’t do the renovation.
Bonus tip # 4:
Our iPhone app is downloadable from the iTunes store for free, enabling you to get numbers at the tip of your fingers! This great app also works on the iPad.
If you want to crunch the numbers yourself, you need to input the 5 pieces of information below:
The year the property was built
State of the finish within the property
Then, click calculate and Bingo! You can compare the depreciation deductions between the diminishing value method and the prime cost method!
And if you’re happy with the results, simply get a quote from us and give us a call so we can discuss the property over the phone. It’s all in the power of your hands!
Here are five things for you to take away today:
Old properties depreciate too
You don’t have to buy new to claim renovation
Renovation helps your cash flow
If you’re about to renovate a property that was built after 1985, get us out before you do so
In an attempt to “reduce pressure on housing affordability” the Government has announced dramatic changes to the way depreciation is claimed on property.
Let’s start with the good news:
1. Any existing investment properties purchased (contract exchange date) prior to May 9 2017 are not affected (unless they were not income producing in the 2016/2017 financial year).
2. Commercial, industrial and other non-residential properties are not affected.
3. Capital works deductions have not been affected. This means you will still be able to claim depreciation on the structure of the building provided it was built after the 16th of September 1987. And you will still need a Quantity Surveyor’s depreciation schedule to do so.
Now that we know what isn’t affected, let’s look at what has changed…
The government will limit plant and equipment depreciation deductions to outlays actually incurred by investors. In essence, unless you as the buyer had physically purchased the items – you can no longer depreciate them. This is a massive change to what you can claim – there by reducing investors’ cash flow.
Originally I thought a quick fix would be to structure the sales contract so that the plant and equipment is separated. But I suspect that the legislation will be worded such that if the plant and equipment was in situ at the time of purchase, you can no longer claim it.
You see, under the recent changes, I suspect the developer will be deemed to have bought the plant and equipment – not you.
However, the acquisition of existing plant and equipment will form part of the cost base, thus reducing your capital gains liability. So investors who hang on to their properties long term, will no longer reap the benefits of depreciating plant and equipment.
So in summary: if a residential property was built prior 1987,and has not been renovated – there will be no depreciation claim.
This is very rare as most pre-1987 built properties we inspect have had some renovation carried out.
If built after 1987 – only the construction costs can be claimed.
Whilst there is still much uncertainty regarding the specifics of this budget’s depreciation-related changes, one thing is crystal clear: If you own a residential investment property and haven’t had a depreciation schedule prepared, now would be a good time to get a quote!
Developers, Project Marketers and Property Sales Agents – If you are selling property and using depreciation numbers that include plant and equipment: STOP NOW! This element needs to be removed from the selling equation, at least until the legislation is finalised.
Here is why I think this is dumb policy.
The proposed changes are being made to “reduce pressure on housing affordability.” In my opinion, it will have the opposite effect for 3 reasons:
Property investors may now feel the need to hang onto their existing properties to continue claiming depreciation because if they sell that property they won’t be able to get as many deductions on the next one.
Developers rely on high depreciation figures in the early years to show investors how affordable an investment property can be. If the allowances are taken away, they will struggle to get pre-sales which are required by banks to fund the deal.
These budget measure are forecast to save $260 million over a 3 year period. I suspect far more will be lost if developers can no longer get new projects off the ground.
Whilst I believe housing affordability is a major issues, this appears to be policy on the run…so the Government can be seen to be targeting property investors, when changes to negative gearing could have been more effective.
I will provide a further update once the legislation is finalised.
Some people prefer to invest in brand-new properties, while others opt for older ones that they can renovate and re-sell for profit. So, which is the better investment strategy? Let’s have a look at some of the pros and cons of buying brand-new and almost-new properties. And depending on your investment strategy, you may pick up some helpful tips for your next purchase.
Buying new property will help investor cash flow due to greater tax depreciation benefits. Tax depreciation benefits are at their greatest when the property is brand-new. With brand-new property you are maximising your available tax deductions, which adds a significant boost to your cash flow position.
Depreciation allowances for new properties can yield big tax breaks. Investors can claim a 2.5% depreciation allowance on the construction cost. Plus you’ll also be entitled to claim the full amount of depreciation allowances on plant and equipment items, such as blinds, ovens, carpets and air-conditioners, which will all be brand new.
By way of example, the owner of a brand-new, Melbourne, high-rise unit recently purchased for $440,000, was able to claim $12,000 in depreciation in the first year.
I often get asked, “Can I claim depreciation on my very old investment property?”
The simple answer is yes, but this is where a lot of investors make a mistake.
There are two components to a depreciation schedule Quantity Surveyors prepare on your investment property.
The Building Allowance
The first component involves claiming what’s called the “Building Allowance”.
The Building Allowance relates to the structure of the building. It includes things like brickwork, concrete, windows and even the kitchen sink!
Unfortunately, this part of the claim is date dependent.
If construction of your residential property began after the 16th of September 1987 – yes you can claim the Building Allowance. If construction started prior to this date – I’m sorry – you miss out on the claim.
Plant & Equipment
However, ALL properties are eligible to have the Plant and Equipment component of the building depreciated.
Claiming depreciation on Plant and Equipment relates to the wear and tear of items within your investment property, like carpet, ovens, dishwasher etc.
These items actually wear out more quickly and therefore can be claimed at a higher rate, over a quicker amount of time.
If you need a quote for depreciation on your old property – click here.
Here’s a video in relation to claiming depreciation on an old house.
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