Claim Depreciation on Previous Owners’ Renovations

Claim Depreciation from previous owner

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).

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 Depreciation Quote Schedulethat 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?

Depreciation CalculatorIf 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 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.

Conclusion

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.

Tax Time: What You Can Claim

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!

claim tax

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!

  1. Acquisition and Disposal Costs incurred to gain a tenant.
  2. 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.
  3. 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.
  4. Expenses that cover utility bills such as water charges, electricity and gas, and telephone calls.
  5. Installation and activation charges for items in the property such as in-house audio and video service charges and servicing costs.
  6. 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. Depreciation Calculator

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.

Can I DIY my own Depreciation Report?

As an expert in the market I am baffled by the number of companies that offer do-it-yourself depreciation schedules. Not only are there some potential legal issues but, more importantly, you will be missing out on deductions.

The Issue with DIY Depreciation

The DIY depreciation option generally gives you a tick sheet and asks you to take your own measurements of rooms and other parts of the property.

DIY depreciationNow, let’s say you measure from one bedroom wall to the other. If you do that all around the house you could reduce the property by 10% in gross area. At around $1,500 per square metre to build, you would have missed out on something like $15,000 worth of tax deductions.

When a client comes to us needing a depreciation report, we will send out a quantity surveyor to do a thorough site inspection. This involves a measurement of all the rooms and areas in the property (allowing for wall widths and other anomalies) and all the plant and equipment items including carpets, blinds, ovens and air conditioners.

It is a thorough process and you should use technically qualified people to do it.

The Australian Institute of Quantity Surveyors’ (AIQS) Code of Practice also stipulates that site inspections are necessary to satisfy ATO requirements. This guarantees you won’t miss out on any deductions. The documentation can then be used as evidence in the event of an audit.

Depreciation CalculatorThe AIQS also points out that those property owners who attempt to estimate their own depreciation, or use non quantity surveying qualified people, risk submitting an incomplete or poor depreciation report, which could be a double whammy. It could not only cost them in missed deductions but could also possibly attract an audit by the ATO if their report is not up to the standard required.

Work out how much you save using our free property depreciation calculator or make it happen and get a free quote for a depreciation schedule now.

This blog is an extract from CLAIM IT! – grab your copy now!

When do you need a Quantity Surveyor?

Unless your property is very unusual, there would generally be no reason to speak to a quantity surveyor before purchasing a property.

While you’re hunting for potential investments, you can work out the estimated depreciation for a property by using Washington Brown’s free online depreciation calculator.

Once you have committed to purchasing the property, it is time to start thinking about contacting a quantity surveyor.

The ideal time for a QS to do an inspection is straight after settlement and just prior to the tenant moving in. This is to make sure that we don’t disturb the tenant and we also get to see exactly what you have purchased and the condition that it is in.

Why is that important?

quantity surveyor

Case Study

Jenny Jones owned a unit in a complex at Hastings Parade, North Bondi. This property had substantial damage to the structure due to the surrounding elements (rain, wind, ocean spray, etc.). To fix the problem, the strata body raised a special levy of $80,000 from each of the six unit-holders and engaged a builder to carry out the work.

Once the building work was completed the strata manager engaged Washington Brown to differentiate between work that was capital in nature and work that was considered to be repairs.

The Result

In general, special levies raised are not deductible, but Washington Brown was able to break down the construction costs into repairs and capital works (i.e. eligible for building allowance depreciation). In the end, we estimated approximately $57,000 of the client’s $80,000 expenditure, or close to 80% of the overall spend, could be Depreciation Quote Scheduleconsidered as an immediate deduction.

The client’s accountant thought this figure was too high and asked for a private ruling from the ATO.

The ATO ruling read as follows:

“The Tax Commissioner accepts the classification of the work carried out as per the report prepared by Washington Brown”.

I can proudly say that the $57,350 deduction was approved in full, as opposed to claiming the work over 40 years at 2.5%.

The Australian Institute of Quantity Surveyor’s (AIQS) website www.aiqs.com.au gives a detailed description of the major works and services of quantity surveyors. The list is quite detailed and informative, so you may find this helpful when you’re considering whether to consult a quantity surveyor.

Work out how much you save using our free property depreciation calculator or make it happen and get a free quote for a depreciation schedule now.

This blog is an extract from CLAIM IT! – grab your copy now!

Why do I need a Quantity Surveyor?

quantity surveyorYes, builders are good at building. However, that doesn’t necessarily make them good at maximising the depreciation allowances you, the
developer or investor, are entitled to.

That’s why if you have contracted a builder to construct your investment property, it definitely pays to have a quantity surveyor prepare a depreciation report for you.

In my two decades of being a quantity surveyor, I’ve never seen a builder’s depreciation schedule that I could not improve upon and thus, significantly increase the claim for the investor.

Some of the common mistakes I see in builder-prepared depreciation schedules are:

The last mistake is by far the worst, as this can cost you considerably.

(NOTE: 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).

Let me give you an example;

Depreciation Quote ScheduleYou see, when a builder buys an oven for $800, that’s not what you pay for it. By the time the investor pays for this item, a range of other fees would have been included,
such as the architect’s design, transportation, installation and supervision. Next thing you know the real cost of this oven to you is $1,100, and it’s the real cost we’re after, not what the builder paid.

Now, that extra $300 on the oven depreciates at 20% per annum, rather than at the 2.5% building allowance rate. This means you can claim the depreciation much faster.

So at the end of the day, let builders build and let quantity surveyors save you money.

Work out how much you save using our free property depreciation calculator or make it happen and get a free quote for a depreciation schedule now.

This blog is an extract from CLAIM IT! – grab your copy now!

Increase Cash Flow with these Depreciation Tips

Property depreciation tips

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’.

Depreciation Quote Schedule

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

(NOTE: 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).

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.

Depreciation Calculator

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 sales@washingtonbrown.com.au. 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.

Can Depreciation Reports be split?

can depreciation reports be split

Can depreciation reports be split?

Yes!

So, when should you split your depreciation report:

If you have purchased a property with a friend or family member, your depreciation schedule should be separated into individual reports that reflect how much you each own of that property.

This will not only save you money in terms of accounting fees – but can save your hard-earned dollars as the table below shows.

Comparison of combined and separate report:

can depreciation reports be split

Because the television costs over $300 it can’t be written off immediately. Read our article about items being immediately written off under $300 here. By splitting the report, the television price now reflects the investors’ individual ownership. This enables each investor to claim the television as an immediate deduction.

(NOTE: Deductions for plant and equipment items may only apply if you bought the property prior to May 9, 2017 – Read about the Budget changes here).

So can depreciation reports be split? Yes they can, and they should be.

The next step is to work out how much you could save using our free property depreciation calculator or make it happen and get an obligation free quote for a depreciation schedule now.

This blog is an extract from CLAIM IT! – grab your copy now!

Why the Financial Year End Matters

Financial Year

Every one exchanges and settles a property on different days. However, the end of the financial year only occurs once.

Your report should calculate exactly how much you can claim for building allowance depreciation, based upon the number of days you have owned the property in that financial year.

For instance, if you settled on June 30, you should only be claiming 1 / 365 of any value attached to, say, the oven or the carpet (see this post on small items and low-value pooling for exceptions to this rule). Some reports don’t do this calculation for you. This will cost you money in terms of accounting fees. Depreciation Quote Schedule

One thing I’d like to point out on the timing of your depreciation report is that you should get it sooner rather than later. Don’t wait for the end of financial year deadline when everyone is scrambling to get a report. If you have settled on a property late in the year (say around November or December), order a depreciation report right away so you can avoid the June rush. In some circumstances, you are also able to request monthly deductions, rather than wait until the end of the financial year, and having the depreciation numbers included in your tax variation will assist you.

Work out how much you save using our free property depreciation calculator or make it happen and get an obligation free quote for a depreciation schedule now.

This blog is an extract from CLAIM IT! – grab your copy now!

Don’t DIY Depreciation Schedules

diy depreciation schedules

Don’t DIY depreciation schedules

DIY Depreciation Schedules

As an expert in the market I am baffled by the number of companies offering do-it-yourself depreciation schedules. Not only are there some potential legal issues but, more importantly, you will be missing out on deductions.

The DIY option generally gives you a tick sheet and asks you to take your own measurements of rooms and other parts of the property. Depreciation Calculator

Now, let’s say you measure from one bedroom wall to the other. If you do that all around the house you could reduce the property by 10% in gross area. At around $1,500 per square metre to build, you would have missed out on something like $15,000 worth of tax deductions.

When a client comes to us needing a depreciation report, we will send out a quantity surveyor to do a thorough site inspection. This involves measurement of all the rooms and areas in the property (allowing for wall widths and other anomalies) and all the plant and equipment items including carpets, blinds, ovens and air conditioners.

It is a thorough process and you should use technically qualified people to do it.

The Australian Institute of Quantity Surveyors’ (AIQS) Code of Practice also stipulates that site inspections are necessary to satisfy ATO requirements. This guarantees you won’t miss out on any deductions. The documentation can then be used as evidence in the event of an audit.

The AIQS also points out that those property owners who attempt to estimate their own depreciation, or use non quantity surveying qualified people, risk submitting an incomplete or poor depreciation report, which could be a double whammy. It could not only cost them in missed deductions but could also possibly attract an audit by the ATO if their report is not up to the standard required.

Work out how much you save using our free property depreciation calculator or make it happen and get an obligation free quote for a depreciation schedule now.

This blog is an extract from CLAIM IT! – grab your copy now!

Tips & Tricks of Property Investing

Tips & Tricks of Property Investing

Let’s get into the tips & tricks of property investing:

1. The higher the building, the higher the depreciation

Why? Because it has more of that plant and equipment stuff that I’m talking about and this stuff depreciates faster. It also has things like gyms, pools, etc.

(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).

2. Old properties depreciate too

You’ve already paid something for it. So while you can’t claim the structure of the building, you may be able to claim the ovens, the dishwashers, the blinds, etc. because the plant and equipment is based upon what you pay for it and the effective life of each item can be a benefit. That means that if the carpets is going to last two years, you may be able to claim it over for 50% each year.

And at Washington Brown we are so confident that we actually guarantee our results. So if we can’t get you at least twice our fee in the first year, we won’t charge you!

3. Buy items that actually cost you under $300

For instance, if was going to buy a microwave, I wouldn’t buy one that costs $330 because I would have to claim it at 20% per annum. However, I’d buy one at $295 because I would be able to claim it immediately.

4. Sometimes furnishing your property can actually result in a greater depreciation deduction

Why? Because the furniture depreciates rather quickly compared to bricks and concrete. So putting things like dining tables, bedding and all that stuff into a furnished property can actually accelerate your claim to the point that if you were to buy $20,000 worth of furniture, you could possibly get a $10,000 deduction year 1 alone! But you’ve got to be smart about this. You can’t furnish all properties as it really depends on the location. This tip does not apply to all properties.

5. The actual construction cost must be used

Now that’s not a tip, that’s in the law. But what we found lately is that there are a lot of properties out there that are actually being sold close to their construction cost – certainly in some areas.

For instance, a property is sold at the original selling price of $95,000 in 2004. Our client just paid $45,000 for it. The original construction was $52,000. Now, I don’t know any other way that you can get a deduction greater than what you pay for something. Depreciation Quote Schedule

6. Utilise the residual value write-off

If you were to renovate a property that was built after 1985, you should get a quantity surveyor out before you do the renovation so that we can put some values onto items that you are about to remove and you can get a written down value of those items and claim it immediately as a tax deduction.

So if you remove the kitchen, the light fittings, the shelf screens, etc., all that stuff can be written off if your property was built after 1985.

For instance, you bought a property that was built in 1989 and in that property there was a kitchen that was originally installed and you now wish to upgrade it. If you were to demolish now halfway through its effective life, you could get a $10,000 immediate tax deduction for it! However, just remember that the property needs to be income producing before you rip it out.

So the tip here is to get a quantity surveyor out before you renovate a post-1985 property.

7. Always use an expert

Quantity surveyors have been recognised by the Australian Taxation Office to estimate construction costs where the costs are not known. Accountants and valuers for instance, are not allowed to estimate costs unlike quantity surveyors and not all quantity surveyors specialise in this service, Washington Brown certainly does.

Also, as far as I know, a depreciation report is the only tax deduction that can be subjective and open to interpretation skill. Every other tax deduction is based on what you pay for it.

8. You get more depreciation on a new property

Now let’s have a look at the difference between the depreciation of a new property versus that of a four-year old property. It’s very similar to the effective lives of the property, that in fact, you’ll be surprised. Now, most of the deduction within a property is actually related to the building allowance. However, you’ll definitely get more depreciation on a new property compared to a pre 1985 property.

9. Use the Washington Brown Depreciation Calculator

Now, this is a good tip. You can go online and check the depreciation available on your own property using our calculator, the first calculator that uses live data! You can check new versus old properties, get an accurate depreciation assessment, and the great news is that it’s free!

Now, here are some bonus tips:

Bonus tip #1: Don’t use a builder’s depreciation schedule

Builders are good at building. They miss out items and they sometimes don’t understand the design and council costs can be included. Let a quantity surveyor do the depreciation schedule for you.

Bonus tip #2: The type of materials is a huge factor

If you renovate, you might want to consider the type of materials you are going to use. For instance, carpets depreciate over 10 years but the floor tiling will depreciate over 40 so it can add up. Depreciation Calculator

As another example, various types of partitioning may yield varying depreciation allowances. Some depreciate a lot quicker than others.

Moreover, we have air-conditioners and fans as examples too where the depreciation differs…

The types of materials used may vary and in turn, may change the depreciation allowance you can claim. So it pays to consider the item you’re about to install.

Bonus tip #3: You can claim renovation even if you haven’t done the work

If you buy property that was built in 1900 for instance, but was renovated in 1990 not even by you, you can still claim depreciation. You can claim the renovation cost even if you didn’t do the renovation

Bonus tip #4: Get Mobile

Our iPhone app is downloadable from the iTunes store for free, enabling you to get numbers at the tip of your fingers! This great app also works on the iPad.

If you want to crunch the numbers yourself, you need to input the 5 information below:

  1. Purchase price
  2. Nearest city
  3. The year it was built
  4. Property type
  5. State of the finish within the property

Then, click calculate and Bingo! You can compare the depreciation deductions between the diminishing value method and the prime cost method!
And if you’re happy with the results, simply get a quote from us and give us a call and we can discuss the property over the phone. It’s all in the power of your hands!

Here are five things for you to take away today:

  1. Old properties depreciate too
  2. You don’t have to buy new to claim renovation
  3. Renovation helps your cash flow
  4. If you’re about to renovate a property that was built after 1985, get us out before you do so
  5. And remember: Always use an expert!

Thank you and if you have any questions, please contact us at 1300 990 612 or send an email to

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.