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.
If you’re looking to invest in real estate, commercial properties present plenty of opportunities. However, you need to consider the risks and market drivers. This commercial property investment guide will help you.
You must think about more than the property investment basics when investing in commercial real estate. There are many complex market issues at work, which means you take on more risk.
Understanding these issues will play a role in the success of your investment in real estate. Commercial properties come in all shapes and sizes, which you must account for. This commercial property guide will equip you with the tools you need to succeed.
The Market Drivers
Several drivers affect the state of the commercial real estate market. You must understand what these drivers are before you can invest successfully. They include the following:
- The strength of the economy. A weak economy means there are fewer businesses available to lease your property. Keep an eye on the data. For example, transport sector growth indicates that an economy is getting stronger.
- Infrastructural improvements influence businesses’ decisions. For example, the building of new roads usually results in an influx of companies to an area. Buy your commercial property with future developments in mind.
- The Reserve Bank of Australia’s (RBA) interest rates have an effect. If interest rates are on the rise, you’ll find less success with your commercial property. The cost of money increases. This places your potential tenants under greater financial strain. Conversely, low interest rates lead to more demand.
- Population growth in certain regions will affect your decisions in real estate. Commercial properties do well in areas with large populations. This is because the demand for services increases, which leads to an influx of businesses into the area.
- You should also consider population demographics. For example, areas with a lot of retirees will have more need for medical services. However, areas with lots of children need more family-oriented services. Use population demographics to find out about the types of businesses that will express an interest in your property.
There are also several risk factors to consider when you invest in commercial property. Here are some of the most important:
- Commercial properties tend to stand vacant for longer than residential properties. You will have to handle the costs of the property during such periods. As a result, it’s usually best to tie commercial tenants to long-term leases.
- New property construction always presents a risk to your investment. Your tenants may decide to explore their options, which could lead to vacancies. It’s the issue of supply and demand. The more supply, the harder it is to find tenants. You also won’t be able to charge your tenants as much when there are other options available.
- Size is an issue. Large commercial plots cost a lot more to maintain, and are only suitable for certain types of business. Smaller plots may be cheaper, but they also have their limits. You must consider the local demand for services before deciding on the size of your commercial investment.
- Infrastructural improvements in other areas represent risks for your established commercial properties. Your tenants may make the move to the new area, which means you lose out. As a general rule, try to invest in properties that are close to central business districts (CBDs).
A poorly-constructed lease could lead to the failure of your commercial investment. These are the factors to consider when creating your leases:
- Commercial leases can extend from three years up to 10. The longer the lease, the less risk of vacancy. However, a bad tenant on a long-term lease could cost you. Offer the option to renew if you’re confident in the tenant’s ability to make on-time payments.
- Link your rent increases to the Consumer Price Index (CPI).
- You may require council approval for some types of business. For example, chemical treatment plants need to have the correct documentation.
- Insert a condition that compels the tenants to revert the property to its original condition upon leaving. This will make it easier for you to rent the property out again when you current tenant departs.
What Else Should You Consider?
Further to this, you need to arrange proper financing for your purchase. Many residential lenders can’t help you with commercial properties. As a result, you may have to locate a specialty lender. Furthermore, you may not be able to borrow more than 70% of the property’s value.
You’ll also deal with a commercial agent, rather than a real estate agent. These professionals specialise in attracting the right businesses to your property. They’ll also help you to create attractive deals for potential tenants.
The Final Word
As you can see, commercial investment is a complex subject. This commercial property guide will equip you with the tools you need to succeed.
The team at Washington Brown can also help you to claim depreciation on your commercial property. Contact us today to speak to a Quantity Surveyor.
Make Sure You Claim All Depreciation on Your Commercial Real Estate
If you’re thinking about buying commercial real estate in Melbourne, you need to prepare yourself. Many people fail to claim the commercial tax deductions in Australia that are due to them. This results in thousands of lost dollars.
You can claim for all sorts of things on your commercial real estate property. For example, you can claim deductions for the wear and tear of your fittings, furniture, and the structure itself. In fact, making the right deductions at the right time can affect cash flow. You can change a negatively geared property into one that enjoys a good cash flow.
So now you’re probably wondering how to maximise depreciation on your commercial investment property in Australia. Our guide will show you how.
Get the Ownership Structure Right
How you buy your commercial property is just as important as the type of property you buy. You need to have the right structure in place if you’re going to claim the maximum depreciation.
For example, you can increase your deductions if you buy the property using a trust. The same is true if you buy with your self-managed superannuation fund (SMSF). In both cases, you can split your deductions. You can make claims on the building as a standalone entity. Furthermore, you can also claim on any tenancy assets. However, you must operate a business in the property to do this.
Furthermore, you can claim for any capital works you undertake during your ownership. These can include extensions and many other general improvements. Finally, if you occupy the building as a business owner, you can also claim depreciation for any fixtures or fittings. Again, you must use these as part of your business operations.
Maintain Your Records
It should go without saying that it’s vital that you maintain accurate records if you want to claim commercial tax deductions in Australia. However, a remarkable number of people don’t do this.
Document every expenditure that relates to the building. These include both the immediate and ongoing costs. Furthermore, you should add day-to-day expenditure to the list. Keep anything that relates to a financial transaction involving your building. These records can help you to claim more.
Use a Quantity Surveyor
Every commercial property investor should employ the services of a quantity surveyor. These professionals can help you to create depreciation schedules. A good schedule ensures you can claim as much as possible on your property.
A quantity surveyor will carry out regular inspections of your property. These help to determine what deductions you can make each year. They’re ideal for long-term planning as well. A good depreciation schedule will lay out how to claim deductions for the next 40 years.
Furthermore, quantity surveyors understand how to maximise your depreciation based on your timeline. You may only intend to invest in the property for a short period of time. That’s okay. A good surveyor will take this into account, just like they would for a long-term investment.
It’s likely your surveyor will recommend the diminishing value method if you’re a short-term investor. This assumes the value of your assets depreciates most during their early years. As a result, you can claim for more depreciation in the short-term.
Long-term investors may prefer the prime cost method. This assumes uniform depreciation over the lifetime of your assets. As a result, you claim the same amount each year, rather than the bulk in the early years.
Which method works best for you will depend on the time commitment you make to your commercial real estate investment. A good quantity surveyor can talk you through the different timelines.
Take Advantage of the First Year
Your first year of ownership is vital. It’s when you will set up the structure through which you will manage your commercial property for the years that follow. Getting things wrong during the first year makes things more difficult than they need to be later on.
However, you also need to take depreciation into account from the moment you invest in the property. This is where your quantity surveyor can help again. You may be able to depreciate some of your assets faster with a commercial property than you would a residential one. Your surveyor will point this out to you. As a result, you can make more upfront savings using depreciation, which means you have more cash to use during that difficult first year.
The Final Word
Maximising your depreciation from a commercial property isn’t easy, but you can do it. Use the services of a reputable quantity surveyor and don’t put anything off.
Remember that you can make claims for depreciation from the moment you invest in the property. Don’t lose money because you were slow on the uptake.
All eyes on forced sales as the new NSW strata laws are introduced
As of November 30, new strata laws have come into effect in New South Wales after many years of ‘toing’ and ‘froing’.
Whilst these changes encompass over 90 reforms, the one everyone is talking about deals with collective – or ‘forced’ – sales.
Essentially, there has been a softening in the current requirement that 100% of owners must agree to amalgamate and end their strata scheme in order for the unit block to be able to be sold to developers.
Now only 75% of owners need to agree. That’s right 75%! What about the remaining 25% you ask? Well, they can now be forced or compelled to sell.
This will no-doubt cause shock and outrage for some however this approach is not a new idea. For example; other countries such as Singapore require a minimum of 90% of owners to agree. Closer to home, other states around Australia are also now pushing for similar legislation to be introduced in their respective territories.
The figures floating around suggest that more than 75,000 strata schemes and 2 million people will be impacted by this reform in NSW.
Why has the State Government introduced this reform? The simple answer is that they’re trying to encourage urban renewal.
There is a multitude of old and dilapidated apartment buildings across NSW, particularly in Sydney. Many are well-past their use-by date, and REINSW Strata Management Chapter Chair Gary Adamson notes that the cost of maintaining these is substantial. In some cases, this maintenance expense is almost equivalent to replacement cost.
Adamson states that introducing reforms to allow more sales to occur will not only alleviate the issue of residents having to fork out huge sums of money all the time, it will also allows for more higher-density accommodation developments to be built in areas close to major infrastructure.
This ‘more efficient’ accommodation is needed to cater for Sydney’s growing population. The city’s current population of more than 4 million is set to expand by nearly 50 per cent to 6.6 million in 2036.
All these extra people will need somewhere to live and chances are they’ll want to be close to amenities and services. Fair enough. This of course means that the only way forward for the city when it comes to meeting its rapidly growing housing demands is up. Indeed, it’s expected that by 2040 around half of Sydneysiders will live in strata accommodation.
While the collective sales law provides for forced sales if the minimum percentage of owners agree, it doesn’t necessarily mean the building will be knocked down to make way for a new higher-density building. The alternative is that the existing building can be put to better use by having a developer add apartments to the existing footprint and update the general block. In this case, owners can potentially move back in after the work is completed.
The potential issues as I see it
Since it’s only just been implemented, we can’t exactly predict the benefits and consequences of collective sales as a result of these new laws.
While Adamson is aware there may be some issues arising from the reform, he believes overall it will be a positive thing providing much-needed residential accommodation in Sydney.
It will also allow those owners who do want to sell an opportunity as they will no longer be held back by a small minority. In some cases, one owner has refused to sell because they’re holding for a ‘pie in the sky’ price. I’ve personally heard of many situations where elderly owners don’t want to leave their homes and therefore won’t sell.
Some investors could also object to sales – many may want to hold their appreciating assets for the long term, and they also may want to avoid tax implications arising from any sale, with timing being critical.
The main issue that could arise out of forced sales is the way the sale proceeds are divvied up.
It appears that the proceeds will be divided between individual unit owners according to their unit entitlements, which are the lot owner’s share of the strata scheme. This is used to calculate levy contributions and determine the voting power of each lot owner.
Unit entitlements are generally set when the building is constructed and the strata scheme is formed. It is important to note that in the past, there has been no requirement for unit entitlements to be based on a valuation of lots – rather they were largely determined at the developer’s discretion.
As such, unit entitlements don’t necessarily reflect the current value of the property. To illustrate this, consider two identical side-by-side units with the same unit entitlement; they might be now be valued differently if one has been significantly renovated and the other hasn’t been well maintained.
Owners that are forced to sell may, in particular, dispute the distribution of sales proceeds based on such examples.
In such cases, if the owners agree, the sale proceeds may instead be divvied up according to an independent valuation rather than unit entitlements.
The legislation, however, does provide safeguards for disputes over fair value. If the owners cannot reach an agreement, it will likely go to court to be decided.
What I can say with certainty is that there will be teething issues. “Nobody has gone through this so it’s yet to be tested,” says Colliers International Capital Markets Investment Services executive Tom Appleby. “It’s a grey area.”
Going forward, issues with unit entitlements versus real value should be reduced as it’s now been mandated that the former must be determined by a valuer rather than the developer submitting their own self-assessed unit entitlements.
Residential vs commercial
The impact of the collective sales law isn’t restricted to residential properties either. Commercial and industrial properties are also in the mix.
In fact, Appleby believes it will predominantly be commercial buildings that are impacted.
There are many older commercial buildings in Sydney’s residential-zoned areas that are strata-titled he elaborates, and these properties provide great opportunities for developers to come along and build high-density units.
What’s more, he says, is that these commercial buildings will be cheaper to buy than residential apartment buildings.
Many commercial strata owners will be impacted by these sales, says Appleby. They might be reluctant to move but will be forced to, and will most likely be pushed out of owning and into leasing space.
“One of the major issues is there will be a shortage of commercial property to own, with older rundown (strata-titled) commercial buildings withdrawn from the supply and turned into residential buildings,” he says.
Could there be a big payday for unit owners?
Appleby says that owners in strata schemes should be aiming for 100% of owners to agree if they want developers to pay a premium, because the process for the developer will be hassle-free.
“It’ll be a headache for developers if they only have 75%, “ Appleby says. “Owners will really only get the ultimate premium if they’re offering the building in one line.”
While the objecting owners will be forced to sell in line with the new laws, Appleby says developers may have to fund legal proceedings to get the deal across the line which requires time, effort and money.
“It will be a stumbling block,” he says.
Speaking from a commercial standpoint, Appleby says that if the building is zoned for residential, then there will absolutely be a big payday for unit owners going down the collective sales route.
“Some owners are looking to get double what it was one year ago,” he says. “It depends on the zoning and where it’s located; some are looking at a lot more.”
Since the reforms have been mooted for some time, Appleby suggests that developers have been actively looking for commercial strata-titled buildings in good residential-zoned locations for at least a year to take advantage of the new collective sales law and build high-density units.
He states that many have approached owners directly, seeking to buy 75% and get control of the buildings to develop ready for when the new laws were implemented.
Rather than selling direct to developers, he says owners should be seeking to get professional advice to help them get the best possible price.
Other significant reforms
While collective sales are drawing everyone’s attention, there are a number of other interesting reforms to be implemented from the new strata laws, including:
- A move towards increasing allowance of pets
- Implementation of further Smoking restrictions
- Limitations on the number of adults living in an apartment
- Some minor renovations work can be done without permission
More information about these other reforms can be found here.
What does Trump’s election victory mean for Aussie real estate?
Since the US election, there’s been endless speculation about what the win from Donald Trump will mean for not only the US, but other countries around the globe.
Would you believe that the predictions for Australia’s property market range from doom and gloom through to uplifting and very positive, including that property prices could rise, property prices could fall, there could be a recession…
But the key here is that it’s all speculation. What will really happen remains unknown, particularly since Trump’s policies seem to be subject to change and we don’t know what will actually be implemented until he’s in office next year. In fact, he probably doesn’t know himself!
Let’s look at the positive vs. negative case
‘The Donald’s’ election win scared investors and sent shockwaves through the share market, with $32.5 billion wiped from the ASX. It quickly rebounded, however, with more than $50 billion added the following day, the best session since 2011.
Did the confidence of real estate investors take a hit too? Since the real estate market doesn’t see the impact of these events until further down the track, we don’t yet know. However, in the initial aftermath of the election, there has been a case put forward that Trump’s win could actually benefit our market.
It’s all to do with confidence and sentiment. The big positive for Australia in all of this could be an increase in foreign investment. Our country is seen as a safe-haven in the midst of global volatility, which could lead to greater demand for property and hence, push up housing prices.
Some commentators suggest demand from foreign investors could come from the United States itself, with its citizens choosing to either relocate elsewhere (although this is unlikely – just think of all the celebrities who have already reneged on their promises to leave the US!) or simply invest their money in a country they consider to be safer than their own. The US is already one of the biggest sources of foreign investment in Australia’s property market.
Chinese investment in our real estate market is also likely to rise. The case is already pretty compelling for Chinese investors to move their money here; irrespective of Donald Trump they love buying Australian real estate. Australia has long been seen as a safe-haven for Chinese capital. Despite measures introduced to curb foreign investment, Chinese investors continue to buy Australian real estate in large quantities, lured by not only the perceived security of our market but by factors including our lifestyle and great schools. In this sense, the Trump phenomenon could just be another factor strengthening their desire to invest in Australian real estate.
While some Chinese investors seem to indicate they don’t care about Donald Trump and his election to the US presidency, there is an argument that he has “declared war” with China, with promises to tighten trade agreements and increase tariffs on goods imported from China into the United States.
Some economists have argued that Trump’s trade policies could have a very detrimental impact on the global economy, potentially leading the Australian economy into a recession, negatively impacting upon the share market and the property market, which is where price fall predictions come in.
It seems interest rate predictions have already changed since Trump’s election; prior to it there was an expectation of another fall in the cash rate, but now an upward move appears more likely, as Trump’s trade policies could cause global inflation to climb. Combined with a weakened Australian dollar, this could provide an impetus for the RBA to increase the base rate.
Trump’s real estate interests
Let’s not forget Donald Trump is a real estate tycoon with property developments around the globe. He has built office and residential towers, hotels, casinos and golf courses around the world, perhaps surprisingly, he has towers in countries including Turkey, Panama, India, the Philippines and Uruguay.
While post-election Trump has said he now doesn’t care about his business empire, the fact remains that he clearly has a vested interest in real estate and keeping property markets around the world buoyant – at least where he has properties!
It will, of course, have to be balanced by his responsibilities as the leader of the free world and his determination to do what’s best for the US and its citizens.
Other interesting snippets about Donald Trump and property include:
- Trump is reportedly committed to bringing regulatory relief to the financial services industry in the US, which could make credit more readily available and increase activity.
- Infrastructure is expected to be central to his administration’s policy agenda, which could benefit the property market.
- Despite a lot of hostility towards the incoming president, Trump-branded properties are reportedly thriving and likely to grow even further in value after his election win, with greater buyer demand. The Trump International Hotel and Tower in Chicago are said to have increased 25% to 75% in value and in New York the tower reportedly increased in value by around 200% since he was elected.
Remember it’s all about hypotheticals at the moment
We can all sit here and make claims about what Trump’s presidency will mean for Australia’s real estate market, but the reality is that we don’t know. It’s all speculation, and there’s a lot of misinformation out there too. What will really happen will only be determined in time.
At the end of the day, the fallout will be all about confidence and sentiment. IT will come down to whether people have the confidence to continue investing in the share market versus property, and in the US versus other countries that are perceived to be safer.
It also depends on whether Australians have the confidence to keep investing in Australian real estate. Unless a recession hits, it’s likely they will. Why? Because of the fundamentals supporting our real estate market, including population growth, a stable economy, a strong banking system with tight lending restrictions, and a shortage of properties in some areas.
Any deterioration in confidence will likely be short-lived, just like Brexit.
As time goes on the initial shock will subside. The protests will eventually come to an end, and it’s likely Trump’s presidency will be more measured than people expect. Which should translate to sentiment being restored in the long term.
Property prices in the UK have indeed defied all the naysayers’ post-Brexit, being up by 7.7% over the past year according to the latest figures.
With everything being just predictions and speculation, how about we add another to the mix: Maybe the best course of action is to go and buy some shares in Boral so you can benefit when the wall is built along the Mexican border?
Claiming depreciation is one of the most important steps in an investor’s journey. Here’s my Top 5 Tax Depreciation tips to maximise the return on your investment property.
Number 1: Use an Experienced Quantity Surveyor
You’ve just paid hundreds of thousands of dollars for a property. Do you really want to risk missing out on tens of thousands of dollars in deductions just to save a couple of hundred tax deductible dollars on the ONLY tax break available to you that can be open to interpretation and skill?
The ATO has identified quantity surveyors such as Washington Brown as appropriately qualified to estimate the original construction costs in cases where that figure is unknown. The laws have also changed frequently over the years and each building is unique, so it pays to get expert advice. The ATO requires all companies who prepare Tax Depreciation Schedules to be registered Tax Agents.
Number 2: Claiming the Residual Value Write Off
I believe millions of dollars will be missed over the coming years in tax depreciation claims due to changes in what can be defined as ‘plant and equipment’.
If you are renovating a kitchen or bathroom in a property built after 1985 – get a quantity surveyor in before you demolish so they can assess what the residual value of the existing items are. This residual value can be claimed as an outright deduction and can generate huge savings in the first year (The plant and equipment component of this may now be considered a capital loss rather than deduction from your personal income taxes due to recent Budget changes).
For instance, a rental property with a 20 year-old kitchen could possibly attract an immediate deduction of around $5,000 if removed.
The added bonus is that you get to claim depreciation on the new work once it is complete too!
Number 3: Small Items and Low Value Pooling
A dollar today is worth more than a dollar tomorrow so deduct items as quickly as possible.
Individual items under $300 can be written off immediately. An important thing to remember here is that provided your portion is under $300 you can still write it off.
For instance, say an electric motor to the garage door cost an apartment block $2000. If there are 50 units in the block, your portion is $40. You can claim that $40 outright – as your portion is under $300. You can also try to buy items that depreciate faster such as purchasing a microwave that costs $295 as opposed to one that costs $320.
Items between $300 and $1000 fall into the Low Pool Category and attract a higher depreciation rate. So for instance, a $1200 television attracts a 20% deduction whilst a $950 television deducts at 37.5% per annum.
Number 4: Old Properties Depreciate too
Even properties built before 1985 (when the building allowance kicked in) are worth depreciating.
The purchase price of your property includes the Land, Building and the Plant and Equipment. As a quantity surveyor we help you apportion or break down the purchase price into those categories.
In about 99% of cases we find enough plant and equipment items to justify the expense of engaging our firm (for ‘Pre-Budget’ properties). At Washington Brown we guarantee to save you twice the fee of engagement or your report will be free!
Number 5: Use the Washington Brown Tax Depreciation Calculator
The saying goes “if only I knew then what I know now!” When it comes to depreciation, you can. Investors can use our website, free of charge, and get an instant estimate of the likely tax depreciation deductions on a property before they buy it.
This calculator uses real life data collated from every inspection we do on behalf of our clients. So the data gets more accurate with time.
For more information on depreciation or to discuss your specific investment property, call us on 1300 990 612 or email [email protected]. Tyron Hyde is a director of Washington Brown – The Property Depreciation Experts. He has a degree in construction economics and is an associate of the Australian Institute of Quantity Surveyors.
CLAIM IT! – Wall Street has been for years!
Well, to be honest, I actually wanted to be an architect – but didn’t get the marks.
My brother-in-law, who was a property developer, saw that I liked construction and that I was good at maths so suggested that Quantity Surveying might be a good fit.
The year was 1989 and off I went to UTS for a couple of years.
But, for those of you too old to remember the late 80’s, interest rates were at 17% and property development ground to a halt.
So like many other hordes of Aussies I thought I’d see the world and went backpacking through Europe.
On this journey I quickly learnt that working for the minimum wage was not the future I aspired too.
One day while walking to a fairly crappy part time job on a dark winter’s day in London, I calculated that the cost of travel, a packet of cigarettes (I’m an ex-smoker – one of those annoying ones) and a can of coke was equivalent to my daily take home pay and right there and then I decided it was time to come home.
I was 22 and thought I was TOO OLD to get into the property industry. (Now I get CV’s from 22 year olds and think they are kids!)
But I did go back to Uni.
And about halfway through the year I saw some ads around Uni call for a “Cadet Quantity Surveyor for Washington Brown”.
Wow, I thought that sounds like a big company.
So I ran around campus and ripped down all the flyers that had been spread throughout the Uni.
Surprisingly I was the only one that turned up for the job.
More surprisingly was that Washington Brown wasn’t a big company – It was a one man band run by Mr. Antony Brown.
I was desperate to get into the industry – so I offered to work for a year for free.
Which I did and can now say proudly that I own the company and we are far from a one man band!
That’s my story – What’s yours? I’d love to hear in the space below.
Property Investment Tips
How to save THOUSANDS OF DOLLARS a year on your investment property taxes with these 7 Property Depreciation Tips!
Depreciation can still be a bit of a mystery to even the most experienced of property investors. To novice property investors it most certainly always is.
To simplify depreciation, basically, it allows you to claim the wear and tear of an investment property as a tax deduction against your income.
There are two components to this claim; Building Allowance (bricks, concrete, etc.) and Plant & Equipment (carpets, ovens, etc.).
(UPDATE: Deductions for plant and equipment items may only apply to commercial properties, brand new properties, if you bought the property prior to May 9, 2017, or some other exceptions – Read about the Budget changes here).
As Quantity Surveyors, we categorise elements of the building into a “Depreciation Schedule” which allows you to legally claim the right deductions come tax time.
Well here are seven tips you may want to consider this tax year to increase the yield on your investment property:
- Small Items and Low-Value Pooling – A dollar today is worth more than a dollar tomorrow so deduct items as quickly as possible.Individual items under $300 can be written-off immediately.So if you are buying a microwave for your property – pay $290 instead of $310 and get the full amount written off!You can also try to buy items that depreciate faster. Items between $300 and $1000 fall into the Low Pool Category and attract a higher depreciation rate.So for instance, a $1200 oven attracts a 20% deduction while a $950 TV deducts at 37.5% per annum.
- Depreciation reports are tax deductible – Book and pay for a depreciation report before the 30th of June, and you can claim the cost of the report as an outright deduction.On average, property investors can claim between $4,000 to $15,000 in depreciation in the first year alone. The age of the property has a lot to do with why that range is so great. The newer the property, generally, the more depreciation you get.
- Renovated properties – You can buy a property that might be over 100 years old…and provided it’s been renovated after 1987 you can claim the costs of those renovations. So even if you didn’t do the renovation, the deductions are there for the taking!
- Older properties – It’s true that new properties get the maximum depreciation allowance available to property investors, but don’t discount old properties. The minimum depreciation allowance on any property starts at around $2,000 in the first year alone.
- Scrapping reports – If you buy a property and are going to renovate the property, it’s worth getting a Quantity Surveyor like Washington Brown to inspect the property BEFOREHAND. We will attribute values to those items that are about to be removed. This can add up to a substantial amount, especially if the property was built after September 1987. In order to do this, the property has to be income-producing prior to the commencement of the renovation.
- Old properties depreciate too – In order to claim the Building Allowance the property needs to be built after September 1987. But, you could still claim depreciation on things likes carpets, ovens and blinds – regardless of the age (if unaffected by the 2017 Budget). Most Quantity Surveying firms guarantee to get you at least twice their fee as a tax deduction in the first year or give you the report for free.
- Backdating reports – If you haven’t claimed depreciation because you didn’t know about it – there is good news. You can go back and amend your previous two tax returns and get the missing deductions backdated. It will cost you in accounting fees, but could well be worth it.
If you are a property investor and don’t have a depreciation schedule – get a free quote here.
Or use our free calculator to work out for yourself how much you could be saving!
Property Investment Tricks
These days I like to drop my daughter off to school as much as I can. I know soon enough she’ll be embarrassed of me – so better make hay whilst the sun shines right?
The other day as I was dropping her off, I looked across the road and noticed something strange.
I said to myself “wait a minute…I reckon those two blocks were the spitting image of each other in another life”.
So being the nosey real estate junky I am – I raced to work and did some research on RP Data and Google maps.
Sure enough, back in the day, these two blocks were pretty similar. But now the block on the left leaves its poor cousin for dead!
Being a Quantity Surveyor – I quickly did some maths – I reckon new balconies, render & paint for a block that size probably cost each owner around $65k.
But I’m thinking they’ll get a $120k more each in resale value.
That’s a pretty good return, but I’ll let you into a very little known trick that’ll make that return even better.
If the work carried out was paid for from the sinking fund…the total cost would have been 100% tax deductible.
So, if the body corporate had been increasing levies whilst the work was being planned – the investors in the block would have been able to claim the work as an outright deduction.
However, if the body corporate had to raise a special levy to do the work, most of the work would only be claimable at 2.5% per annum based upon the cost of the work.
That’s a MASSIVE difference to the bottom the line.
If you need a depreciation schedule – get a quote here.
Or work out how much you could claim on your property by using our free calculator.
Property Depreciation Rate
Property Depreciation Rates – Timelines to Consider for Residential and Commercial Properties
Property investors ought to know that when it comes to claiming building allowance, there is a maximum amount to go for which is the full 4%. Building allowances, which are deductions that allow you to claim your investment property’s construction expenses against your taxable income, commonly range from 2.5% to 4%.
I have mentioned where you can get a 4% claim on building allowance with manufacturing buildings and short-term traveller accommodations. But where do we draw the line with residential and commercial properties?
Do you own a house, unit, or townhouse? If the construction of this residential property commenced within July 18, 1985 to September 16, 1987, you are eligible for a 4% building allowance. Residential properties with dates of construction after this time period can only claim 2.5%. However, because the you can only claim a 4% building allowance for 25 years – if you buy a property today built in 1986, for instance, there is NO building allowance left. It ran out in 2011 (ie. 1986 + 25 years = 2011)
Property Depreciation Rates
Office buildings, serviced apartments, shops, and other non-residential properties for commercial and industrial use can also give you the full 4% on one condition. They have to be built within what we call a “window of opportunity”. This window refers to the time frame between August 21, 1984 to September 16, 1987 and it becomes an opportunity to claim 4% if your construction commencement date falls within this period. Anything outside that window can only give you 2.5% in building allowances with July 20, 1982 being the earliest date you can claim.
So these days it’s better to buy a property that falls in the 2.5% timeline – as your 4% building allowance may have been eaten up by now.
If you need a depreciation quote click here or use our free depreciation calculator to work out your potential savings.