These are extraordinary times for us all. The COVID 19 pandemic is impacting the health of our loved ones, the way we live our lives and the businesses we rely on daily. And here at Washington Brown we are determined to do our bit to help.
Commitment to our clients
Supporting Australia’s property investors is the backbone of what we do. That’s why we’ve launched Washington Brown’s 50/50 Plan to help increase your cash flow when you need it most – NOW.
Put simply – we will be offering all clients the opportunity to pay only 50% of the report now and 50% in 6 months time.
You see, claiming depreciation on your property’s wear and tear from last year, could put money in your pocket this year. But you’ll still need a property depreciation schedule to do so.
The Morrison Government has today announced a $17.6 billion economic plan to keep Australians in jobs, and to keep businesses in business in light of the Coronavirus pandemic.
The Government has outlined an increase of $700M to the instant asset write off threshold from $30,000 to $150,000, and has also expanded eligibility to businesses with a turnover of less than $500M (up from $50M).
Put simply, if you were to buy carpet for your office that costs $40k, previously you would have had to depreciate it – now you can simply write it off.
Washington Brown recently refurbished our office for a cost of $202,000 and were able to claim $35,000 in depreciation in the first year. If we’d carried out the same fit-out today, our first-year depreciation would’ve been a much higher $152,000. That’s a HUGE difference.
The remaining $50,000 relates to capital works items, like painting and plumbing, and will still need to be claimed at 2.5% per annum over a 40 year period.
Quantity Surveyors are experts in breaking down the overall construction cost into individual items and now has never been a more appropriate time to do this.
There are five main points to consider:
Businesses should ensure they have a detailed report of any fit-out costs to be carried out.
When acquiring any new asset, businesses should try to keep the costs below $150,000.
This generous bonus has an expiry date of June 30, 2020.
Assets costing over $150,000 can still be depreciated but not claimed as an outright deduction. Businesses with a turnover of less than $500 million will be able to deduct an additional 50 per cent of the asset cost in the year of purchase.
This accelerated depreciation (point 4) will expire on the 30th of June 2021.
Some examples of what may qualify for an immediate tax deduction include carpet, desks, blinds, work stations and a lighting upgrade.
Whilst we are currently in uncertain times, this incentive aims to assist both your business and the broader economy as well.
I was about 25 years old (a long time ago!) when I did my first property deal. I was the quantity surveyor on a project converting the Balmain RSL in Sydney into residential apartments.
I approached the developer and told him I was interested in buying an apartment. I did not have a lot of cash, so I had to go halves with a friend. We put in $1,000 each as a holding deposit to secure a one-bedroom unit, with a loft, for $220,000. It was a good start – we didn’t even need to fork out the 10% deposit.
Then the builder went broke halfway through the construction. It was a nightmare. It took another 3.5 years to finish the project. What a headache, for me the QS and more so for the developer!
In the meantime, however, while construction was being delayed, the value of the property almost doubled. So, our $220,000 one-bedroom plus loft apartment was now worth around $400,000. We had signed a contract on the original price which meant our $1,000 initial deposit returned quite a handsome profit for my friend and I.
WHAT A rollercoaster the past year has been for property!
We saw a lacklustre start to 2019 largely due to apprehension around last year’s Federal Election and particularly proposed housing-related tax policies from the ALP.
Activity was also subdued due to the fallout from the Banking Royal Commission and tightened lending restrictions imposed by the Australian Prudential Regulation Authority.
However following the Federal Election in May and confirmation the status quo would continue the market slowly started improving as confidence returned, and now it’s firmly in recovery mode.
The difference between the start of 2020 and the same time one year ago is like “chalk and cheese”, says Hotspotting.com.au founder Terry Ryder.
“One year ago everything was super negative but now things are much more positive,” he states.
But just how positive is the market? Will the price growth that started in 2019 continue this year, and if so, will it be at a strong pace?
Let’s first look at why prices have started to rise again…
In the wake of the uncertainty in the property market over 2019 many sellers decided to hang onto their homes, fearing they wouldn’t get the desired price, and construction also eased.
This led to a lack of available stock for buyers to choose from, which Ryder says was one of the several factors contributing to the price growth that started towards the end of the year and has continued into this year.
“One of the factors in the escalation of prices, particularly in bigger cities, was that at a time when demand recovered quite strongly, there was very little supply and vacancies were generally low in most locations around Australia,” he says.
“There was a lot of competition for good properties available, which was a big factor in price growth last year.”
Now, in 2020, there are signs supply is starting to rise, with sellers more confident in testing the market, and more construction in the pipeline, so price inflation that occurred due to a lack of stock will likely be tempered moving forward.
National residential property listings increased in January by 2.2%, according to the latest data from SQM Research. All capital cities saw a rise in listings, but the largest rise was in Sydney of 5.1%, followed by Hobart at 4.9%.
Sydney’s listings are still 24.8% lower than 12 months ago, while nationally listings are 10% lower than a year ago. But there are likely to be further increases in the coming months.
Dwelling approvals are also improving, with annual growth lifting to 2.7%, the first positive since June 2018.
“Markets are rising and people can get pretty good prices for their properties if they’re willing to list them,” says Ryder.
“Consumers were a bit battered and bruised after a period of negativity, including fears of the Federal Election, but since the middle of May last year there have been a series of fortunate events.”
These events include an easing of lending restrictions, tax cuts, three interest rate reductions and more positive media coverage on the market.
“There are always multiple factors in why the market rises and these factors are all part of the equation,” says Ryder.
“But with more supply coming to the market this year, it will take some pressure off prices, particularly in Sydney and Melbourne.
“The market will settle down a bit and be what you might call a ‘normal’ market.”
Indeed, the latest CoreLogic Home Value Index found that while property prices rose across every capital city in January, the rate of growth had slowed in recent months.
Over the past year prices have grown by 4.1%, which is the fastest pace of growth for a 12-month period since December 2017, but in January the index was up by a total of 0.9%, down from its recent monthly peak of 1.7% in November.
Growth markets are aplenty this year
With Sydney and Melbourne likely to take a backseat this year, smaller capital cities are set to come to the fore, including Brisbane, Perth, Canberra and Adelaide.
“Sydney and Melbourne have had substantial and lengthy booms, and the increase in supply and the affordability factor will tend to suppress the level of growth in those cities,” says Ryder.
“Cities that haven’t had a big run but have the right dynamics in play will have a strong year.”
Brisbane is overdue for growth, and all the ducks are starting to fall into line for the city to do much better this year, explains Ryder.
“All indicators are that Perth has finally moved into a recovery after five years of gradual decline and Canberra looks solid, underpinned by one of the steadiest economies in the country.
“Adelaide is always underrated; it’s got a lot more going for it than people realise and it will have a good year as well.”
Hobart has had a good run and is likely past its peak, and Darwin is still struggling, adds Ryder.
He points out that regional areas also have the potential for growth this year, with the strongest market being regional Victoria, with parts of regional New South Wales also looking promising, including Orange, Wagga Wagga, Goulburn and Dalby.
In regional Queensland the Sunshine Coast offers some of the best growth potential, with a strong economy, while some parts of Central Queensland are also recovering, including Mackay.
Thinking back, I now realise I was motivated to succeed from an early age. I saw my father work hard all his life to support 5 kids and then lose all his superannuation in the late 1980’s when he invested it all in a company called Estate Mortgage.
They proclaimed to be “safe as a bank”, but in reality were just lending to developers and offering a slightly higher interest rate on deposits. So that extra 1% or 2% my dad was supposed to get cost him his life savings. It shattered him.
I guess part of me wanted to make him proud and prove that I could “make it”. By the time I was 30, when he passed away, I had my own business and he saw that I was doing OK and I know he was proud.
Nowadays, I get inspired by meeting incredible people.
Whilst there are shonks in the building industry, there are also some creative and passionate people out there too.
Most successful developers don’t do it for the money, so what drives them? It’s generally the challenge that they love, the creativity and the ability it gives them to leave their mark on society.
Classifying repairs and improvements can be tricky enough at the best of times, but what happens when a repair and improvement occur together?
Let’s look at the following example. A rental property’s 25-year-old fence has been slightly damaged during a thunderstorm. A carpenter assesses the damage and advises that repair work will cost $7,000. However, due to a special offer, a brand new colour bond fence can be provided for $11,000. The landlord proceeds with the new fence.
Can the owner now claim the $11,000 as a repair?
In simple terms, the answer is no. This is because there is no separately identifiable repair involved.
A deduction may only be claimed to the extent that the repair can be separately identified from improvement at the same time
In summary, because repair work to the wooden fence (which would have been deductible) did not in fact occur, it is a ‘notional repair’ which cannot be deductible as part of the $11,000 capital cost of the new fence.
The owner may be able to claim the fence over a 40 years period at 2.5% per annum, but that’s a far cry from a $7,000 outright deduction they may have claimed if they only fixed part of the fence.
I wanted to spread some Christmas Cheer and mention the 5 little-known things you CAN claim on if you’ve purchased a property built after 1987. This season is about giving and I hope the below gives you some further insight on how to maximise your Tax Depreciation deductions.
1. A Capital Idea
Many investors do not realise that even if the property is not brand new, they can still claim on the Capital Works/Improvements or Structural aspects of the property. If the property was built prior to 1987, you cannot claim on the original structure but you can claim on the structural portion of any renovations/improvements that have been done by previous owners. Kitchen, bathrooms and Outdoor improvements typically have a higher structural component.
2. Fees Incurred
For any significant renovation or improvement, its is likely that council fees were incurred along with Architect and maybe even Engineer’s costs. Whether incurred by yourself or a previous owner, these expenses should be factored into your depreciation report.
3. Many Parts to the Whole
So you’ve purchased a second-hand property and you can see that previous owners have installed a ducted Air-conditioning system. Air Conditioners are categorised as plant & equipment by the ATO so you cannot claim anything, right? Well, while you cannot claim on the mechanical components, the ducting is considered structural, or capital, in nature and you are able to claim deductions on this.
4. Just Cosmetic?
Painting (both internal and external) is considered to be a capital improvement and can therefore be claimed by subsequent owners. The same is true for Floor Sanding or Polishing. Whilst these are typically not HUGE amounts, they are claimable and help to reduce the investor’s taxable income – “every little bit helps”
5. The Common Good.
Did you know that when buying into most Strata Titled complexes, you are actually taking ownership of a portion of the common areas and facilities? If you have purchased a second-hand property in a Strata Titled building or community, you are eligible to claim your portion of deductions on the capital works items/assets. This often includes things like swimming pools, lobby upgrades and basements etc.
As accredited Quantity Surveyors with over 40 years’ experience, Washington Brown are recognised by the ATO as having the necessary skills and experience to estimate the cost and dates related to previous renovations or improvements.
If you’ve purchased an “older” investment property and have not had a depreciation schedule prepared, get in touch via the link below. We’ll happily provide you with a free estimate of the likely deductions available.
With the proposed changes to Negative Gearing being such a “Hot Topic,” we asked our database to let us know their opinions. I was blown away by the number of respondents!
Below is an interesting summary of the survey results.
For a more detailed look at the proposed policy changes and my thoughts on the broader effect, click here
Do you think that changes to Australia’s Negative Gearing Policy are necessary?
Observation: Of the nearly 3000 people surveyed, less than 20% thought that changes to Australia’s Negative Gearing Policy were needed.
With such a significant number of people responding, it’s pretty clear that the overwhelming majority feel that now is not the time to make wholesale changes to Negative Gearing. It would have been interesting to see what this survey would have looked like if it was carried out in the peak of the Sydney and Melbourne Market when Negative Gearing was being blamed for causing the Housing Affordability Crisis
Did you know that if the Australian Labor Party abolish Negative Gearing, property investors may not be able to claim expenses such as Strata Fees, Property Management Fees as well as Repairs and Maintenance?
Observation: The results indicate that the majority of respondents were aware of the implications of the proposed policy changes in relation to investment property-related expenses.
This surprised me! Whilst most of the survey respondents knew about this, over a third of property investors surveyed didn’t realise that expenses such as these we included in the negative gearing deduction allowances.
Did you know that the proposed Negative Gearing legislation changes will mean that income losses from newly acquired, second-hand rental properties will no longer be able to be offset against employment income?
Observation: From these results, it is evident that the vast majority of respondents understand the potential impact of the proposed policy on an investor’s ability to claim property-related deductions if purchasing a second-hand property.
In regards to differentiating between the impact of this policy on second-hand vs new properties, it seems Labor’s message has been clearly delivered!
Would you still purchase a second-hand property if you could no longer claim Negative Gearing benefits?
Observation: One intention in implementing the proposed Negative Gearing policy changes is to encourage property investors to purchase a brand newly built property. The results suggest these changes would discourage investors from purchasing a second-hand property.
With the clear majority of respondents having second thoughts about purchasing a second-hand property if this proposed policy is implemented, any government should be considering the wider implications for both the property markets around Australia and the effect on the broader economy. Click here for a more in-depth look at this potential impact
Will the Negative Gearing policy of either party influence your vote in the next Federal Election?
Observation: Whilst the responses here do not indicate which way the respondents will vote, they certainly suggest this policy will factor into voters’ decision making.
This is a hot and somewhat sensitive topic! It’s clear from these results that Negative Gearing will definitely be an influencing factor at the ballot box.
Did you know that the proposed limitations to Negative Gearing Policy will not apply to property Investors who purchase brand new property?
Observation: Nearly a quarter of the respondents were not aware that the proposed policy changes and associated restrictions will not apply to investors who purchase brand new property.
Labor is clearly getting their message across regarding this policy and who it will affect. However, in my opinion, allowing Negative Gearing to continue on new property only, has far greater ramifications than those that the Labor party seem to have fully thought through. For more of my thoughts on this matter, click here
Property depreciation is a legal tax deduction related to the ‘wear and tear’ of an investment property over time. A tax depreciation schedule outlines the deductions you may be entitled to claim each year of ownership on the Building Allowance (the structure itself including bricks, concrete, etc.) and, if eligible, on the Plant and Equipment items (internal items like ovens, carpets, blinds, etc).
As with any tax deduction, claiming property depreciation reduces your taxable income. That means more money in your pocket to reinvest or to spend on yourself or on your family.
A depreciation schedule from Washington Brown is a fully-comprehensive, ATO-compliant report that helps you pay less in tax. The amount the depreciation schedule says you can claim effectively reduces your taxable income because it’s taking into account how much it costs you to own and maintain the property.
While you may be used to claiming on such items as council rates or property management fees where you have paid money towards an item or service, depreciation is a “non-cash deduction.” This is because it’s the ONLY deduction that you don’t have to pay for on an ongoing basis – its already ‘built’ into the purchase price of the property.
If you’ve purchased an investment property, request a free quote for a fully comprehensive, ATO-compliant depreciation schedule today and save.
Let me introduce you to our new product, the CGT Saver™ Report – A report specifically created to prevent our clients from paying too much in Capital Gains Tax.
Although you can no longer claim depreciation on second-hand Plant & Equipment Items (ovens, dishwashers, etc.), with Washington Brown’s CGT Saver™, you can claim the applicable and documented value as a capital loss if you remove or replace any of these in the future.
This report lists and values all those included items that you have purchased at settlement. It then allows you to claim a capital loss straight away if any of these items are removed.
The best bit.. This loss can offset other share &/or property gains that you might make.
This report is exclusive to Washington Brown, so ask for it by name and contact us to find out more.
If you have purchased an investment property after May 9, 2017 – request a free quote here and one of our tax depreciation specialists will review your property and let you know if a depreciation schedule is worthwhile for you.
Take advantage of our ‘Double The Fee Guarantee’!
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Very professional and very easy to deal with. Great turn around time and your kept up to date with the progress along the way. Also tax compliant. Fantastic company
Dealing with Washington Brown has been a breeze. I'd originally inquired if there were depreciation benefits for a property and after providing some additional feedback, I got a positive response...read moreDealing with Washington Brown has been a breeze. I'd originally inquired if there were depreciation benefits for a property and after providing some additional feedback, I got a positive response that there were benefits available to be claimed and so I engaged them to produce a depreciation report.
Handled completely online, I was presented with a very simple process and the tracker allows one to know where things have progressed through each of the stages. They were able to engage with my property manager and have the inspection scheduled and the report completed, before being emailed to me. A professional and easy to use detailed report, Washington Brown have done an excellent job and were a pleasure to deal with.read less
Detailed depreciation report which maximises our tax offsets. It is definitely a must to have Washington Brown do a depreciation report for all your investment properties. You never know how...read moreDetailed depreciation report which maximises our tax offsets. It is definitely a must to have Washington Brown do a depreciation report for all your investment properties. You never know how much money you can recoup from depreciation until you’ve got a Washington Brown depreciation schedule. It is an absolutely amazing wealth creation strategy.read less
Very professional and fantastic customer service with quick responses. Fast turnaround on a depreciation schedule for my apartment which was comprehensive, clear and easy to understand. The report came in...read moreVery professional and fantastic customer service with quick responses. Fast turnaround on a depreciation schedule for my apartment which was comprehensive, clear and easy to understand. The report came in a number of handy formats. I am confident that my claimable depreciation costs are maximized. The cost of this represents excellent value for money. Very highly recommended.read less