AFTER MANY months of speculation, the New South Wales Government has revealed its plan to overhaul stamp duty in the state.
What is it all about?
The measure, announced as part of the 2020-21 NSW Budget handed down on Tuesday, will be open for public consultation until March so the community can have a say. Following that, the changes could potentially be implemented from mid next year.
Rather than completely scrapping stamp duty, the Government plans to make it optional for future transactions, so buyers in NSW can choose whether they want to pay a large upfront property tax or an alternative tax in the form of a smaller annual land tax when they buy a home.
The current stamp duty concessions for first homebuyers in the state would instead be provided via a $25,000 grant.
If buyers opt for the annual land tax, the proposed model provides that owner-occupiers would pay a lower rate than investors.
For those who already own a home and are not buying another, there will be no change.
Why make changes to stamp duty?
Stamp duty is the tax buyers pay when they purchase a property and is a huge upfront cost – for a median-priced property in Sydney of $860,955, stamp duty is $34,372.80, but it can also be much more.
By removing this large upfront cost for buyers, you remove a barrier for those looking to enter the market, as well as those looking to move – either by upgrading or downsizing.
That means, as NSW Treasurer Dominic Perrottet has said, that the removal of stamp duty could help many more people – ie. first homebuyers – to realise the great Australian dream of owning their own home sooner.
It will, however, also lead to a more efficient use of housing as it will incentivise people to move into appropriately-sized housing, close to schools and workplaces, rather than staying where they are.
It is also designed to assist in the post-COVID economic recovery, with projections it will inject more than $11 billion into the NSW economy in just the first four years and boost the NSW Gross State Product by 1.7% over the long term.
The proposed changes come as the state has recorded a $16 billion budget deficit, with predictions it will only get worse in coming years.
How significant are these proposed changes?
The proposal to overhaul stamp duty in NSW is a huge change to the property tax system, with the current model having been in place since Federation. The ACT is the only state or territory in Australia so far to have taken steps towards abolishing stamp duty.
Mr Perrottet has pointed out how archaic the tax is, being centuries old, and the importance of modernising the tax system.
Indeed, the abolition of stamp duty is something many prominent economists have been advocating for many years. There has been renewed vigour for the tax’s removal this year as we have faced the pandemic and it was mooted as a way to make major structural tax reforms to support Australia’s economic recovery.
In response to the announcement about stamp duty reform in NSW, Real Estate Institute of NSW CEO Tim McKibbin says it is a long overdue move.
“Stamp duty is an inefficient, inequitable tax that distorts market activity. Not only does it discourage people from moving, especially downsizers who would otherwise free up housing stock, it also limits the additional expenditure homebuyers could otherwise engage in,” he said.
“While there is no such thing as a good tax, some are better than others. When tax becomes a consideration of a transaction and not a consequence, it’s a very bad tax.
“People in NSW have elected not to pay stamp duty by not buying property. On this basis, we welcome the news that stamp duty will finally be phased out in NSW.”
Where to from here?
There will be more clarity – and of course commentary – on the proposed changes to stamp duty in NSW over the coming weeks, with certainty to come following the outcome of the public consultation, when the final tax model will be revealed.
While the REINSW supports stamp duty changes, it has also expressed its lack of support for the replacement of one property tax with another property tax.
“The question should be asked why the property industry, which contributes so significantly to the state’s economy, must shoulder a disproportionate amount of the state’s tax burden,” says McKibbin.
“A land tax may be more broadly-based than stamp duty, but it still only applies to property. Investors in shares, for instance, pay no comparable tax.”
There is no doubt the proposed stamp duty changes will be hotly debated over the coming months. We will keep you informed on the latest news.
By now you have probably heard that the Australian Taxation Office (ATO) is putting Airbnb owners ‘on notice.’
Airbnb has emailed owners warning them that their details have been shared with the ATO.
I suspect that there might be a few ‘Nervous Nellies’ out there – those who haven’t declared the income they have been receiving by letting out their property (or part thereof.)
I also suspect that if the income received hasn’t been declared then any allowable deductions will probably be missing from their tax return as well.
Remember, if you have been renting out an investment property on Airbnb, you might be entitled to claim depreciation as well.
This could equate to thousands of tax dollars saved per year and this may help offset any potential liability should the ATO come knocking.
Under the new laws, however, it does get a little tricky in cases where you rent out part of your home or stay in your holiday home several times a year.
It can still be a worthwhile exercise. If you find yourself in this situation, please give us a call for some free advice as to whether a depreciation schedule is suitable and worthwhile for you.
With so much going on in the Property and Finance space currently, I thought that now would be a great time to catch up with my friend and leading property analytics researcher Terry Ryder (Owner and Creator of Hotspotting).
I was able to speak with Terry recently to ask his opinion on investment and the current climate. I wanted to share the content of our discussion with you all and hope you find it both interesting and insightful.
Terry – in your opinion is it a good time to invest in property now?
It’s time for investors to get off the fence and start taking action in real estate markets.
The revival in major city markets since May has been largely driven by owner-occupier buyers, with investors sitting on the fence and watching events unfold.
Investors exited the Sydney and Melbourne markets in droves last year as it became evident that the boom in those cities had expired.
The first half of 2019 was a perfect storm of negative factors for real estate – the lead-up to the Federal Election put a brake on decision-making, finance was hard to obtain, big city prices were trending south and media was largely pessimistic.
There’s certainly been a turnaround since then hasn’t there?
The turnaround since May has been profound. The Federal Election result led “a series of fortunate events” which unfolded in rapid succession: an easing of lending restrictions, a series of interest rate reductions, lower taxes for many Australians and a change in the tone of media coverage.
Initially, we saw an improvement in sentiment. Then, as that translated into action at street level, the real estate data started to improve. Sales activity picked up, auction clearance rates improved and price trends improved.
Terry – have you got any data to back up this improvement in sentiment?
Real estate data is now positive for most markets. Here’s what the indicators are telling us:-
Vacancy rates: Vacancies are low in most cities. Sydney is the only capital with a vacancy rate above 3%. Vacancies are much lower than last year in Brisbane, Perth, Adelaide, Darwin and Hobart. Melbourne is a little higher but still only 2%. Canberra vacancies are up but remain just 1.2%.
Rentals: Residential rents have risen in all capital cities except Sydney in the past year. Figures from Domain and SQM Research confirm the biggest growth has been in Hobart, which has the lowest vacancies. Rents are up 3-4-5% in Canberra, Adelaide and Perth, while Brisbane and Melbourne are up slightly.
Clearance rates: Throughout August, September and October, Sydney and Melbourne have been recording auction clearance rates above 70%, compared to 45-50% a year earlier. Buyers are competing for good properties and listings are relatively low.
Prices: August and September both delivered positive price data in most cities, notably in Sydney and Melbourne. SQM’s Prices Index early in October recorded monthly price rises in Sydney, Melbourne, Brisbane, Adelaide, Canberra and Hobart. In annual terms, there’s evidence of price uplift in Brisbane, Adelaide, Canberra, Hobart and even in Darwin. Sydney and Melbourne remained down in annual terms, but only by 1-2%, much better than six months earlier. There have been strong rises in many regional markets also.
Investors drifted away from real estate in 2018 and early 2019 because it seemed the growth party was over. Now, all the evidence points to recovery.
The latest lending figures showed the first signs of investors returning to the market. I expect subsequent months to show investors coming back in greater numbers.
Thanks Terry I look forward to chatting with you more in the upcoming months.
“Mathematically” there has never been a greater time to invest in property, at least in my lifetime.
I graduated from University of Technology in 1993 with a degree in Construction Economics, a combination of construction knowledge and accounting.
So when it comes to analysing a property deal, I like to crunch the numbers and because interest rates are so low now – on paper property investment looks pretty good right now!
It’s no secret that there are different strategies when it comes to investing in property. Some people prefer to invest in brand-new properties, while others opt for older property that they can renovate and resell for profit. Whilst depreciation should never be the reason behind an investment decision, recent legislative changes have altered which types of properties are eligible for depreciation deductions.
When announcing the Legislative Changes in 2017, the government stated that moving forward, they will “Deny income tax deductions for the decline in value of ‘previously used’ depreciating assets.”
What does this mean for investors? Let’s look at this in context. If you look at the table below, you’ll see a simplified net effect of the cost of owning an investment property broken down into three generalised scenarios:
- A brand-new property;
- A second-hand property built between 1987 and 2018; and
- A property built before 1987.
1987 – 2018
@ $700 Per Week
|Interest @ 4% of
@ 1.5% (Rates, levies)
|Cash Surplus/Outlay Before
|Year 1 Depreciation Deduction – Building
|Year 1 Depreciation
Deduction – Plant & Equipment
|Total Taxation Position
|Tax Refund @ 37%
(Net Outlay + Tax Refund)
|Cash income Per Week
(If a Positive Number, the Property is paying you)
The assumptions are the same for each scenario: each property will generate a weekly rental income of $700 over a 52-week period, which works out at $36,400 per property.
Furthermore, the interest rate is 4 per cent for each property. Each scenario incorporates an LVR of 80 per cent of the purchase price ($750,000) – This equates to an annual interest expense of $24,000.
Each property will have other expenses – Assumed at 1.5 per cent of the purchase price, which is $11,250 annually. Granted, you could argue that property built before 1987 could have higher expenses, but for ease of comparison, we’ve kept the same rate.
So, it’s the same scenario for each property with the net outlay before depreciation of $1,150.
Now, here’s where things get interesting! What about the depreciation?
- In a brand-new property, the total depreciation deduction in year one is $15,000 (Building Allowance + Plant & Equipment).
- For the second-hand property built between 1987 and 2018, the total depreciation deduction is $4,000. This is due to the fact that the property is not brand new and the Plant and Equipment component is seen as previously used and cannot be claimed on. The only deduction available here are against the original structure and the structural component of any previous owners’ improvements/renovations.
- For a property built before 1987, the depreciation is $0. It is important to note here that, if the property has had improvements/renovations done by a previous owner, you are eligible to claim on the structural component of this. As accredited Quantity Surveyors, it is our job to estimate the date and costs of these previous works.
Note: Recipients of this email are entitled to a FREE estimate of the depreciation deductions available. If you own an investment property, new or second-hand, and haven’t had a depreciation schedule prepared, click here to request an estimate.
Depreciation on a brand-new property
You can see that the total tax loss on the brand-new property is quite high at $13,850. If you are an investor who is paying tax at a marginal tax rate of 37 per cent and you’re making a loss of $13,850, you will receive a tax cheque back from the ATO to the tune of $5,125 – and that’s cash in hand.
This amount, plus the $1,150 (Cash Surplus Before Depreciation) is $6,275. In this example, the property has been paying you $6,275 a year to own that property – so the net return is $120 a week positive cash flow.
Depreciation on an old property
Next, let’s look at the property built before 1987. Again, there is a $1,150 cash surplus before depreciation. In this example, you cannot claim depreciation on the previously used Plant and Equipment or on the original structure. So, here, you’ve actually increased your taxable income by $1,150. If you are in the 37 per cent income tax bracket, this equates to you paying an additional $426 in tax.
Given that you’ve made $1,150 and have then paid the additional $426 in tax for this, you are roughly $724 up per year. That’s around $14 per week you are making to own a property built before 1987.
Depreciation on a second-hand property built between 1987 and 2017
Using the same variables, if you bought a second-hand property built between 1987 and 2018, your annual tax loss would be $2,850, so you would receive a tax refund of $1,055 (providing you are in the 37 per cent bracket). Your cash surplus before depreciation was $1,150, so your annual surplus for owning the property is $2,205. That means your weekly cash flow a positive $42.
As you can see, from a depreciation perspective, there are pros and cons of buying brand-new vs older or almost-new properties. Again, whilst a property’s likely depreciation deductions shouldnt be the main reason for a purchase decision, depreciation certainly has a significant impact on an investor’s cashflow equation.
Remember: To receive a FREE estimate of the likely deductions available to you on your investment property, whether new or old, click here!
Property depreciation is one of the largest tax deductions for homeowners in Australia. But did you know that you can backdate your property’s depreciation? Doing so could save you thousands of dollars every year.
As an investor, you need to take advantage of all the tax deductions Australia has to offer. Property depreciation deductions allow you to control your cash flow from your property. As a result, you can use them to enhance your property’s profitability.
Many who own an investment property in Australia claim depreciation yearly.
Unfortunately, some overlook these deductions entirely. Happily, you can backdate your depreciation claims. Firstly, let’s look at what property depreciation means.
What is Property Depreciation?
So, what counts as depreciation for your investment property in Australia?
You can claim for any loss of value resulting from the wear and tear of the property as it ages. Capital works are the building’s structural elements, and you can claim for all of them, including the roof tiles and the concrete used throughout the building.
You can also claim for the wear and tear of any equipment in the property. This includes things like the property’s fixtures, but extends to things like carpets and ceiling fans. (Deductions for these plant and equipment items may only apply if you bought the property prior to May 9, 2017 – Read about the Budget changes here).
Claiming for your property’s depreciation is one of the most effective tax deductions in Australia. It allows you to reduce your yearly taxable income, which means your tax bill also decreases. When used correctly, depreciation allows you to take home more money each year.
Behind the deductions you claim for interest expenses, depreciation is one of the largest tax deductions in Australia. However, many investors fail to claim for all their property depreciation. Some even forget about it entirely, which could result in the loss of thousands of dollars over the lifetime of your investment.
Using Backdating to Claim Depreciation
So, what can you do if you haven’t claimed for all of the depreciation you’re entitled to? This is where backdating can help you.
There are two key steps you must take to backdate depreciation properly:
- Work with a Quantity Surveyor to create a full depreciation schedule for your property. Your surveyor will inform you about every item you can make a claim for. They will also discuss rental property depreciation rates with you.
- Bring the surveyor’s depreciation schedule to your accountant. He or she will alter your tax returns so that you claim for all of the depreciation you’re entitled to.
In most cases, you can only backdate depreciation for two years.
What is a Tax Depreciation Schedule?
If you’ve never claimed for your property’s depreciation, you may not know what a tax depreciation schedule is.
The schedule your Quantity Surveyor creates, offers a summary of every item in your property that depreciates in value. Think of it as an investment property tax deductions calculator focused solely on depreciation. The schedule notes every item, and informs you of how much you can claim for each over the course of the next 40 years.
As noted, your accountant can use this schedule to backdate your tax returns for the previous two years. However, they will also use it to help them to complete your future tax returns. This ensures you claim properly for all future depreciation of your property’s capital works and equipment.
Can I Backdate for More Than Two Years?
In most cases, you can’t backdate your tax returns for over two years. The Australian Taxation Office (ATO) has strict guidelines in place. These usually prevent you from exceeding the two-year limit.
However, that isn’t to say it is impossible. The ATO has different rules for companies than it does for individual investors. There are also different rules for those using a self-managed superannuation fund (SMSF), or a trust.
As a result, it’s worth speaking to your accountant to find out if your situation allows you to backdate for more than two years. It’s unlikely, but you may strike it lucky and be able to claim for even more depreciation than you expected.
Is Backdating Worth It?
Yes, it is. If you don’t account for your investment property depreciation, you could lose out on thousands of dollars every year. In fact, claiming for depreciation can turn a negatively geared property into a positive one.
On top of that, you can also claim the cost of your Quantity Surveyor as a tax deduction.
The Final Word
That’s everything you need to know about backdating depreciation. Speak to your accountant today to find out how far you can backdate your claims.
Washington Brown is here to help if you need a quality Quantity Surveyor. Contact us today to get a full depreciation schedule for your investment property.
You Can Claim Tax Deductions in Australia for Previous Renovations
When considering tax deductions in Australia, most investors only take their own renovations into account. It does make sense. After all, why should you be eligible to claim deductions on your investment property in Australia if you didn’t pay for the work?
Perhaps surprisingly, you can claim deductions for the previous owner’s renovations. However, there are several things you need to consider. For example, how much you can claim depends on when you purchased the property. The effects of the 2017 Budget play a role here, as what you can claim differs depending on if you made your purchase before or after the budget. Let’s look at what tax deductions in Australia you can claim in both scenarios.
You Bought Before the 2017 Budget
Things are simpler if you bought the property before the 2017 Budget. If this is the case, you can make claims under both Division 43 and Division 40 of the Income Tax Assessment Act (ITAA) by organising a property depreciation schedule.
Division 43 relates to any capital works that the previous owner undertook on the property. This includes any renovations, such as the building of some extensions or remodelling a bathroom or kitchen. It also covers any work done to the building’s structure. For example, you’d be able to claim for a new roof or for some of the walls that the previous owner built.
Division 40 relates to the equipment installed in the property. Your investment property in Australia may have an air conditioning unit or some other piece of equipment that the previous owner installed. If that’s the case, you should be able to claim for it.
The only real barrier is that you may not know the completion date for the work or the cost. Not all sellers will provide you with this information. If that’s the case, you need to employ the services of a quantity surveyor. Your surveyor will provide you with a cost estimate, which you can use when claiming tax deductions in Australia. The Australian Taxation Office (ATO) does not accept estimates from other professionals. For example, you can’t get an estimate from your accountant for the work. It has to come from a quantity surveyor.
You Bought After the 2017 Budget
This is where things get more complicated. You have to consider the extent of the renovation work, as well as whether any was carried out in the first place.
The new budget introduced the term “new residential premises” into the equation. To understand what this phrase means, we need to look at the Goods and Services Tax (GST) Act.
What Does the GST Act Say
You’ll find references to “new residential premises” in sections 40 to 75 in the GST Act. Generally, such a premises is one that has not been rented out or sold as a residential home before your purchase. This won’t usually present a problem. After all, that language basically covers new properties.
However, there’s more. The Act also defines these premises as those that have undergone “substantial renovation” work. The GST Act also provides a description for “substantial renovations”. They are any renovations through which the entire building has either been replaced or removed. As a result, the installation of a new bathroom is not considered as a substantial renovation on its own.
What Does This Mean for Me?
If your investment property in Australia does not fall into the substantial renovations category, you may not be able to claim the same deductions that you could on a property built before the 2017 Budget. In particular, you won’t be able to claim Division 40 depreciation. New equipment on its own is not enough to constitute a substantial renovation.
However, this changes if the building has undergone enough renovation to become a “new residential premises”. In such cases, you can claim for both Division 43 and Division 40 work.
You’ll need the help of a quantity surveyor to work out the extent of the work undertaken on your building. Your quantity surveyor will create a timeline for the building. This will estimate the work carried out, its cost and its extent. You can use this information to figure out if your building falls into the “new residential premises” category.
Don’t fret if it doesn’t. You can still claim for Division 43 work. Your quantity surveyor will be able to provide more exact information detailing exactly what you can claim for.
You’ll need the services of a quantity surveyor, regardless of when your property was built. They will be able to tell you what previous renovations you can claim for.
We can help you if you’re looking for a quantity surveyor. Contact us today to maximise the depreciation on your property’s previous owner’s renovations by getting a depreciation schedule quote.
Don’t Be Put Off Because You Can’t Explore The Property
There are many things you need to consider when buying an investment property in Australia. While the process may be exciting, it can also be confusing.
One of the main choices you need to make relates to the type of property you buy. Do you purchase an older property that has a track record of generating income, or a brand new property that may stand a better chance of meeting the demands of tenants?
What if we told you there’s another way? Instead of buying a property that already exists, you can buy one that’s under construction. This idea may stray away from the property investment basics that you’ve read about while working out the complexities of investing in property for beginners. However, we can offer six reasons for why an off-the-plan property could prove to be a wise investment.
Reason #1 – Earn Early Capital Growth
What’s one of the first investment property tips for beginners that you’ve heard? It’s probably to buy low now so you can make a profit later. Buying an off-the-plan property allows you to do just that. So how does it work? It’s simple. You pay a deposit to the developer, and this secures your ownership of the property.
However, the construction settlement date may be several years in the future. As a result, you can earn capital growth for the home, even during the period prior to construction. You won’t even have paid the full price of the property before it starts making money for you.
Reason #2 – Stamp Duty Savings
Buying an investment property in Australia comes with a lot of added fees. The largest of these is often stamp duty. In most states, you will have to pay thousands of dollars in stamp duty before you can take ownership of the property. Take Victoria as an example. For a property worth $500,000, you’ll have to pay almost $20,000 in stamp duty.
Buying off-the-plan can help to avoid this major fee. Most states don’t charge stamp duty on properties that don’t exist yet, which means you make thousands of dollars in savings from the beginning.
Reason #3 – Extra Saving Time
You only have to put down an initial deposit when you buy an off-the-plan property. As we mentioned before, you may have to wait for a couple of years before construction finishes.
This gives you plenty of time to save some money. Once construction ends, you could have thousands of dollars that you wouldn’t have had if you’d bought an existing house. You can then put this money toward your home loan, reducing the principal so that you pay less interest on the loan over time.
Reason #4 – You Can Claim Depreciation
You may be planning on renting out your off-the-plan property when construction ends. If so, you may be able to claim thousands of dollars in tax deductions in Australia on the property.
Make time to create a depreciation schedule with the help of a quantity surveyor. This will highlight all the things that you can claim as depreciation upon completion of the property. This may include the new furniture and fixtures that you add to the property before making it available to tenants. The higher the depreciation, the lower your holding costs.
Reason #5 – You Can Pick the Perfect Plot
Showing early interest in a new development comes with its own advantages. In addition to benefitting from the lower prices that developers often charge to their early investors, you also get to choose from the best plots of land.
This will benefit you monetarily when construction ends. Getting in early means you can pick the property that will have the best views or offers the amenities that your tenants will want. As a result, you can charge higher rents, so your property generates more income.
Reason #6 – Reductions in Other Costs
A brand new property does not come with the maintenance needs of an old property. That should go without saying. You won’t have to earmark thousands of dollars for repairs, as the property should be good to go from the moment construction ends.
However, did you know that off-the-plan properties could save you money in other areas? It’s all thanks to recent changes in the Australian Building Code. New properties must now meet several energy efficiency criteria. This means the cost of utilities falls, which benefits both you and your tenants.
The Final Word
Buying off-the-plan may seem scary at first. After all, you don’t have the opportunity to explore the property before you buy it.
However, it opens the door to savings that you wouldn’t have access to with an existing property. To find out more about buying an off-the-plan investment property in Australia, contact Washington Brown today.
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.
Tax time is creeping up on us! So I thought I’d provide a simple list of some things that you can claim on. And that will help you save some money.
If you’ve been reading this blog, you’d know by now that some things cannot be claimed as an immediate deduction. However, there are some that can be.
So make sure you don’t miss out on claiming them!
So, what are these expenses that can be written off immediately?
Well here’s a list that will save you immediately. Make sure your accountant is able to claim these for you!
- Acquisition and Disposal Costs incurred to gain a tenant.
- Charges and fees such as body corporate charges and fees, council rates, lease document expenses, legal expenses, mortgage discharge expenses, tax related expenses, insurance, and interest on loans.
- Fees related to hired services such as property agents’ fees and commissions, quantity surveyor’s fees, pest control, cleaning, gardening and lawn mowing, and secretarial and bookkeeping fees.
- Expenses that cover utility bills such as water charges, electricity and gas, and telephone calls.
- Installation and activation charges for items in the property such as in-house audio and video service charges and servicing costs.
- Other miscellaneous expenses such as travel and car expenses, and stationery and postage.
Remember, these expenses can only be claimed if they were directly incurred by you and not the tenant.
So if you are renting out your property, now is the best time to go over your receipts and check which expenses fall under the list and before you know it, you’ll have more deductions than you bargained for!
If you need a depreciation schedule for your investment property – get a quote here or work out how much you can save using our free calculator.
The property market is currently in a state of limbo, particularly those involved in the selling of new property.
Because budget statement in relation to helping “reduce pressure on housing affordability” has potentially changed the game and announced dramatic changes to the way depreciation is claimed on property.
Let’s start with the good news:
- Any existing investment properties purchased (contract exchange date) prior to 7.30pm Tuesday, May 9th 2017 are not affected (unless they were not income producing in the 2016/2017 financial year – read more about the updated Budget changes here).
- Commercial, industrial and other non-residential properties are not affected.
- 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. 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…
According to the budget statement
“From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans.”
Here’s the uncertainty….who actually acquired the plant of equipment?
Was it the builder/developer or was it the initial purchaser of the brand new residential property?
This is key.
Why is the government making these changes?
“This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value.
Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.”
The industry needs urgent clarification on this matter! Why? Because many agents are currently advising potential buyers on the cashflow advantages of new property. This figures may prove to be inflated and put the developer or marketer at risk further down the line.
You see investors rely on these figures in assessing the merits of the investment.
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 they need to hang on to their existing properties in order to continue claiming depreciation. With these new changes, if they sell this property, they won’t be able to get anywhere near 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 the pre-sales which are required by banks to fund the deal.
- These budget measures 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 issue, this truly appears to be an example of policy on the run…
Here’s the solution:
Plant and Equipment in residential property needs to run it’s natural course.
The ability to re-value and re-assess the item after it’s initial effective life has run it’s course should be squashed.
Put simply, if you a buy a property that is say, 11 years old, and it has a dishwasher installed that had an initial effective life of say 10 years you can’t claim it, revalue or re-assess it.
That would alleviate the government’s concern that:
“….that some plant and equipment items are being depreciated by successive investors in excess of their actual value. “
This would make a lot more sense in my opinion
I am looking forward to providing a further update once the legislation is finalised and I will give more details regarding the specifics of these changes when they come to light.