Helping property investors achieve their dreams
We help property investors achieve their dreams
Over the last couple of years I’ve become a bit of a seminar “junkie”.
It used to always be property seminars but the last couple of years it been more business seminars.
After 20 years in business, every now and again I need a kick up the bum!
I took it one step further recently and flew to LA to hook up with 300 other like-minded business owners.
What I didn’t expect to find was how motivated and focused the Americans that I met were.
I was in one seminar and the presenter said “turn to the person next to you and tell them what your business does”
So I started, turned to the lady next me and said “We work out what things cost to build.”
She looked at me and says “But what do you really do?”
I replied, a little bit scared of her, “I save people money?”
She looked at me and said in her sweet Californian accent “But what drives you to do that?”
I thought about it for a while and replied “I help property investors achieve their dreams”
That is going to be the new Washington Brown mantra – because that’s what we do.
Free Property Depreciation eBook
I’ve written a book on depreciation, called Claim It! However, this goal didn’t just happen over night…
Like everything in life, there was a windy path that lead me in to depreciation and then into writing my own book!
My goal since I was 23 has always been to educate property investors about the power of property depreciation. Bit weird I know.
I used to be a Junior lawns bowls champ (when I was playing in 1984 – there were 6 players under 18 playing – so it wasn’t too hard!)
Then at 15 I thought I had a career as first grade footballer…but as I went through puberty I realised my legs were too skinny!
So then at 23 I discovered property depreciation – and I wrote a thesis on the topic in 1993…
Last year I wrote my book CLAIM IT! – and it’s the proudest thing I’ve done in my work career.
That’s a hard copy book… and in this modern world of iPads not everyone wants a hard copy.
So this month I launched a FREE eBook that gives you some of the key chapters for free, including my personal investment story and strategy.
Get it for free now – at www.washingtonbrown.com.au/ebook
I hope you enjoy it.
Building Allowance Investment Property
4% Building Allowance Investment property
THE BUILDING ALLOWANCE (sometimes referred to as the Capital Works Deduction) is a deduction that enables property investors to offset the hard construction costs of their investment property against their assessable income. Hard construction costs may include items such as concrete, brickwork, common property items that are not plant and equipment, and even excavation. This deduction is allowed under Division 43 of the Income Tax Assessment Act (ITAA) 1997, which sets out deductions for Building Allowance.
Now, what’s so good about claiming a 4% Building Allowance? Well, obviously, the higher the deduction, the less tax you have to pay. The Building Allowance is one of those “non-cash deductions”. This means you don’t have to fork out the cash to claim it, you already did when you purchased the property.
For example – if your building was built for $250,000 and the plant and equipment was $30,000 – this leaves a Division 43 claim of $220,000. At 2.5% annually this amounts to a $5500 deduction. At the 4% rate the claim is $8800 per year.
How do you claim the 4% Building Allowance on a property?
Purchase a manufacturing building where the core activities qualify under Section 43-150 of the ITAA 1997.
Purchasing a building that qualifies under the industrial activities of s43-150 of the ITAA 1997 will qualify the industrial building for a 4% write off.
For instance, buildings involved in refining petroleum, milling timber, freezing primary products, printing, curing meat, canning or bottling, might qualify.
Other operations that qualify include buildings in which items are brought in or maintained in the condition in which they are sold. For instance, recently we were able to claim this allowance for a major car manufacturer on the property where its vehicles were serviced.
But not all industrial buildings qualify. More than likely, if you have purchased a single factory in a complex of 50 factory units, it’s unlikely your building will qualify.
If you purchase several units that can be defined as “short-term traveller accommodation” you may be able to claim a 4 per cent building allowance.
ATO ID 2003/513 has provided clearer definition as to what can now be defined as short-term traveller’s accommodation. Unfortunately, it’s not good news for investors, as most serviced apartments fall back into the 2.5 per cent category. If your serviced apartment has a kitchen, you should be claiming 2.5 per cent not the 4 per cent building allowance – unless you own 10 in the same building.
Some investors expect to receive the 4 per cent building allowance because they own a holiday house and have it fully furnished. But this type of accommodation does not fit into the category.
The construction needs to have commenced after February 27, 1992 to be eligible. This type of investment generally has the highest depreciation claim as a proportion of the purchase price. This is in part to the higher building allowance but also because these types of investments have more plant and equipment in them. They generally have lifts, pools, and also are often fully furnished.
(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).
But a high depreciation schedule does not necessarily make a good investment. Many people have been burnt in the past buying these types of investments based upon the available tax deductions.
Surely there must be some downside in claiming the 4% Building Allowance? Well there’s no such thing as a free lunch. There is one downside – any amount claimed under Division 43 will need to be factored in when calculating your capital gains tax liability. This rule applies generally to assets acquired after July 1, 1997. But under the principal of “a dollar today is a better than a dollar tomorrow”, coupled with the CGT relief allowed, it’s still worth the exercise, especially to higher income earners.
If you need a quote for a depreciation schedule – click here – or use our free tax depreciation calculator today