What is Depreciation Schedule?

What is a depreciation schedule?

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.

Order a report today and save

THE CGT Saver Report

   

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.

Similarly, using this report, if you were to sell a second-hand property with those items still intact, what you would have been able to claim in depreciation in the past, you can now claim as a capital loss which reduces your capital gains tax bill.

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.

Building Allowance Maximiser

Let’s talk about bricks and mortar. Or what the Government calls the Building Allowance.

Whilst you can no longer claim depreciation on plant and equipment in second-hand investment properties, that’s the things like ovens, dishwasher etc.

You can still claim the structure of the building, that’s the bricks, concrete, windows, tiling, etc. provided the residential property was built after 1987.

And these costs typically represent about 85% of the construction cost of the property.

And that’s good news, but I want to turn it into great news!

Up until now, when you ordered a depreciation report, quantity surveyors give you a lump sum total for your building allowance, based on the government’s guidelines that these items last approximately 40 years.

But in our experience, that’s not true.

Investors tend to update things like kitchens and bathrooms every 20 years.

So Washington Brown has come up with the Building Allowance Maximiser report, and it’s the only one of its kind.

What it does, it splits the building allowance into different categories, based upon our research of what items wear and tear more quickly.

Which means, if you use our report, when you replace those items or update them, you’ll be able to claim the full amount as an immediate tax deduction.

Let’s say I bought a property 20 years ago, with a kitchen that cost $10,000 to build.

Now, because it’s halfway through its 40-year life, I’ve only claimed 50% of its depreciation, which is $5000.

When I remove it today, using Washington Brown’s new report, I’ll be able to claim the remaining 50% as an immediate tax deduction.

Not bad!

So, if you want to claim the maximum building allowance that you’re entitled to, order a report today.

We are pretty proud of it, and my expensive lawyer thinks it’s a patentable system so we have a patent pending.

 

The Secrets to Investing Using an SMSF

investing in SMSF

You Could Use Your SMSF to Save on Your Tax Bill

You can use a SMSF (self-managed superannuation fund) to buy an investment property in Australia. However, this has previously been quite difficult. Many lenders would not allow SMSFs to borrow money, which means they had to fund the full purchase themselves.

However, that changed after the 2017 Budget. Now, a self-managed super fund can borrow the money needed to fund the purchase of an investment property in Australia. As a result, those who previously couldn’t afford to use their SMSFs to buy an investment property in Australia now have a pathway to do so.

The first thing to remember is that you shouldn’t set up a SMSF solely to buy a property. However, having it available makes sense for a lot of small business owners. After all, a business owner can occupy the SMSF’s investment property in Australia, as long as they use it for business purposes.

However, managing an SMSF takes a lot of time and hard work. To help you along, we’re going to show you some of the secrets of using an SMSF for property investment.

Getting Started

You’ll need some money in your SMSF before you can use it to buy an investment property in Australia. How much will depend on your situation, but as a rough guide you should aim to have $200,000 available.

This will help you to cover the deposit and the fees associated with taking out a home loan. Furthermore, you’ll probably have some money left over for diversification. This Depreciation Calculatoris important, as investing only in property could come back to bite you if the market crashes.

The funds should come from every SMSF member. You don’t have to fund the entire thing yourself.

Know How Much You Can Borrow

Most lenders are still quite wary of lending to SMSFs. That shouldn’t come as a surprise, as many have only just started doing so following the 2017 budget. As a result, it’s unlikely that you’ll be able to secure a home loan with a loan to value ratio (LVR) above 80% of the home value.

In fact, most lenders prefer to offer 50% LVR on SMSF loans. Having a 50% deposit available for your investment property in Australia increases the lender’s confidence and puts the property closer to being positively geared.

Making Repayments

Of course, you need to make repayments on the home loan once you’ve secured it. This is where the self managed super fund can really help an investor. You can use your super contributions, which you can deduct from your taxes, to make the repayments. The same goes for any rent or other payments that the SMSF receives.

As a result, you often won’t need to spend any of your own money to repay the home loan. Better yet, you can deduct quite a large portion of the repayments from your tax bill. Of course, it’s best to work with a tax professional to ensure you set up the correct structure for this.

The Tax Benefits

Depreciation Quote ScheduleLet’s look at the tax benefits of buying an investment property in Australia using an SMSF in more detail. For one, the fund only has to pay a maximum tax rate of 15% on any income the property generates.

However, the bigger benefits come if you choose to sell the property. Assuming the SMSF has held the property for at least one year, you only have two-thirds of the capital gains tax (CGT) you would have paid on a property you personally own.

Better yet, both of these tax contributions disappear if the SMSF keeps the property until its members start claiming their retirement pensions. As a result, retired SMSF members can benefit from the property’s income, without having to pay any tax. They also receive larger lump sums if the SMSF sells the property because they don’t have to pay CGT.

Can Everybody Do It?

Property investing using an SMSF sounds appealing, and it can provide you with a lot of benefits. However, it’s not for everybody.

As mentioned earlier, you should avoid using your SMSF to invest in property if it doesn’t have a large sum of cash available. Diversification is crucial when investing, so you don’t want to be in a situation where your SMSF relies only on the property’s income. A lost tenant or property market crash could cause major problems.

Furthermore, those on low incomes should think twice about investing using an SMSF. Remember that you have to make regular SMSF contributions. These contributions benefit you when it comes to your taxes, but they’re also long-term benefits. You may struggle in the short term if you don’t have the money to make regular SMSF contributions.

Budget Changes to Depreciation

Budget Changes to Depreciation

The 6 must-know takeaways from these budget changes:

  1. For residential property, you will only be able to claim depreciation on plant and equipment items (ovens, dishwashers etc.) when you buy a brand new property.
  2.  You will still be able to claim the building allowance (bricks, concrete etc.) on any residential property built after 1987.
  3. If you bought a property built prior to The Budget on the 9th of May, 2017 when the changes were announced, you are not affected in the slightest.
  4. There is no change at all to commercial or other non-residential property.
  5. If you personally buy any item for your property after the settlement you can still claim the depreciation on that particular item.
  6. Perhaps the most interesting point: Whilst investors purchasing second-hand property can now no longer claim depreciation on the existing plant and equipment, they will have the benefit of paying less capital gains tax when they sell the property, by claiming any unclaimed depreciation as a capital loss.

Moving forward, property investors will have a choice of ordering a building allowance report only, a CGT schedule or a combination, from Washington Brown.

Depreciation Calculator

Will the Property Market Crash?

Property Crash

Investment risk and uncertainty in the real estate housing market

It’s tough being a property investor sometimes.

Where is the best place to buy? Is now the right time to buy?  Will the property market crash? Has it peaked? These questions and many, many more like them can make investing in property seem a little overwhelming.

This is certainly not helped by the media. Newspapers only seem interested in selling stories about the property market going through a “boom” or writing about the possibility of a forthcoming crash.

Sensationalist headlines like “Australian Property Market Certain to Crash” to sell newspapers have become so common across most mainstream media.

Why is this a problem? Well, you see, Australia is a big place. No singular property market exists. The country is made up of many, many individual, diverse and not-necessarily interlinked property markets.

You try telling someone who paid $800k for a property in the mining town of Moranbah that is now Depreciation Quote Scheduleworth $100k, that the property market hasn’t crashed yet!

Recognising the above leads me to discuss the two main markets in Australia, the Sydney and Melbourne property markets.

I can think of many reasons why the Sydney & Melbourne property markets are set for major corrections and I can think of many reasons why they aren’t.

I guarantee you that if I could find five experts to argue that these two markets are stable and will continue to grow, I could find five experts who believe a crash is imminent.

Having said that, I’m going to tell you my number 1 reason why these markets won’t crash.

Wait for it. Drum roll, please…

The number one reason the Sydney & Melbourne Property market won’t crash is….

IT’S TOO BLOODY OBVIOUS.

You see, you don’t see market crashes coming. Yet, every day at the moment I can find an article predicting that the end is nigh.

How many of you sold all your stocks just before the GFC? In hindsight, it was pretty obvious that was coming. Seen the movie the Big Short?

Any of you sell all your tech stocks before the crash?

Remember the Asian economic crisis in 1997…did you see that coming?

Well, I didn’t.

Depreciation CalculatorWith daily comments warning that an oversupply of apartments is coming, it’s TOO obvious to predict a Sydney & Melbourne market crash.

However, there is one BIG caveat on this reasoning and it relates to gearing.

If you have bought a property in the last year or so and are borrowing or have borrowed more than 80% you may see a crash.

Why? Well for you, the market only needs to go down 10% and you have lost 50% of your hard earned money. That’s a crash in anyone’s language!

If you have borrowed sensibly and have bought in a good location, you certainly have less chance of facing a market crunch.

Taking A Peek At The Prestige Top End

For many of us, living in a grand harbourside mansion with all the bells and whistles is a pipe dream. It’s a fairy tale world for the rich and famous.

But it seems there are many wealthy buyers out there for luxurious properties. Consequently, Australia’s prestige property market is reportedly performing well.

Recent sales back up this assertion, with record prices recently being set in both Melbourne and Brisbane. As well as in individual suburbs within these cities and in Sydney.

A four-bedroom mansion at 9 Towers Road in Melbourne’s inner eastern suburb of Toorak that sold at the end of last year for $26.25 million set a record for not only for Melbourne, but for Victoria.

Meanwhile in Brisbane a five-bedroom house with city and river views at 1 Leopold Street in Kangaroo Point, just east of the CBD, just sold for a record $18.48 million.

In Sydney last year four waterfront homes in Vaucluse were purchased for a total of $80 million by Leon Kamenev, the co-founder of Menulog, with many other double-digit sales taking place throughout the year.

Prestige property prices rose by more than 11% in Melbourne over 2016. With Toorak being the best performer, recording more than 30% growth, according to Domain. In Sydney and Brisbane prestige prices rose by 15.3% and 7.4% respectively.

prestige property

What is a prestige property?

What constitutes a ‘prestige property’ differs across markets. But in the major metropolitan markets it’s generally considered to be property worth at least $2 million.

In Sydney, where median prices are the highest in Australia at $880,000, the prestige market is considered to start at around $3 million.

Once upon a time property over $1 million was considered to be high end. In many cities this is no longer the case, with medians creeping higher.

In many inner-city suburbs, $1 million will now only buy you a pretty standard house, not a mansion!

 

Who’s buying?

It’s the rich, but not just the famous, buying in this market.

There are plenty of local buyers looking for lifestyle. But there has also been an influx in foreign buyers and expats. This is due to uncertainty created overseas by the election of Trump and Brexit, as well as the falling Australian dollar.

It’s not a huge part of the market, with these properties said to make up just 5% or less of the overall market in Australia, but it’s a growing part.

In fact, CoreLogic research shows that the number of sales above $2 million has more than tripled in the last ten years, driven by Melbourne and Sydney.

 prestige property

Are investors in this market?

Your average mum and dad investor can’t afford to splurge on a prestige property. It’s predominantly an owner-occupied market, although there are properties in the top end of the market that are tenanted.

Those looking to invest in the top end must do their research to make sure they don’t overcapitalise. While also buying something likely to experience capital growth.

It can be hard not to overpay due to an absence of comparable properties to determine the value. Many vendors also stick to unrealistic sale prices since they’re usually not forced to sell.

Properties situated in the inner ring of capital cities often fit the criteria for capital growth, as there is no shortage of demand. Lifestyle areas can also be a good bet for growth; they’re becoming popular again with people increasingly looking to work remotely or commute to work.

For resale value consider what buyers of prestige property want. They want particular attributes from the property itself. Such as impressive architecture or facilities such as a tennis court, entertaining areas or fantastical views. Then they also want to be in close proximity to amenity such as private schools.

While the number of potential buyers for your property will be smaller than that for a cheaper home, if you sell at a time when demand exceeds supply you could make a significant profit.

Just be careful since this market can be susceptible to economic fluctuations, so timing will be important.

Depreciation Calculator

The outlook for 2017

After suffering during the global financial crisis (GFC) the prestige market is now said to be firing in many different cities due to a return of confidence. It’s expected there could very well be more record sales this year.

This is especially the case for Sydney, Melbourne and Brisbane, as well as the Gold Coast. This regional city had the most expensive sale for Queensland last year. The home of former Billabong executive Scott Perrin in Mermaid Beach selling for $25 million.

Solid demand for the prestige market could outstrip the restricted supply, which means prices could be pushed up further.

Perhaps surprisingly, it can be hard for buyers at the top end to find something suitable that meets all their criteria. While there are plenty of more affordable properties for sale at any one time, the fact that there are a smaller number of prestige properties and they’re often tightly held – or sold off market – means there is far less to choose from.

Depreciation Quote Schedule

Is The Block the world’s worst development?

Washington Brown has crunched the numbers on The Block’s latest development in Melbourne’s inner-city bayside suburb of Port Melbourne, and something just doesn’t add up.

 From a financial point of view the development, which consisted of transforming a 1920s art deco building into a luxury apartment block, was one of the worst he has ever seen.

While I understand the magic of television, Channel 9 has outdone David Copperfield in creating the illusion of a profit to the public!  Depreciation Quote Schedule

Let’s look at the numbers:

According to reports Channel 9 bought the site for around $5 million, which allowed for 6 apartments. Only 5 were sold on TV and for calculation purposes let’s say the acquisition costs is $4.2 million.

The construction cost and depreciation allowances totalled over $11 million, for the 5 apartments alone.

That’s $15.2 million alone in construction and acquisition costs.

It’s worth noting that under the Income Tax Assessment Act 1997 the initial vendor (ie. the developer) has an obligation to pass on the actual costs of construction to the purchaser, where the costs are known.

Let’s not forget there’s then a variety of other costs involved in buying and selling, and undertaking a property development, including:

Whilst some of these costs may have been avoided due to contra deals, the bulk would have to be outlaid by Channel 9. Depreciation Calculator

I estimate these additional costs to conservatively be $2 million, which brings the total cost to $17.2 million.

The Block’s total sales realised just a little over $12 million, leaving the development in the red by around $5 million, yet it has been indicated that profits of up to $715,000 were made by the contestants.

That something David Copperfield would be in awe of.

You know it’s the peak of the market when reality TV shows are pulling rabbits out of a hat to show a profit.

Whilst the contestants may have walked away with some ‘profit’, if the numbers are to be believed as shown on the show that development was a stinker.

The worry is these shows give an unrealistic expectation to would be budding renovators.

Should Investors Steer Clear of Units?

Unless you’ve been living under a rock, it’s inevitable that you’ve heard, read or watched a doom and gloom story about the unit market in the news recently.

investors steer clear of units

According to the headlines there’s an oversupply, prices will crash due to the glut of new apartments coming onto the market and buyers won’t be able to complete off-the-plan purchases because valuations won’t stack up.

All of this is enough to scare any investor away from buying a unit. And if you own one you might be getting nervous right about now too, thinking your investment is in trouble.

But is it all really as bad as it seems? Depreciation Quote Schedule

Should investors steer clear of units?

The broad answer is no. While there’s no doubt that there are plenty of units being built, especially in inner Melbourne, Sydney and Brisbane, and some markets are oversupplied and should be avoided, there are also others providing good opportunities for savvy investors who have done thorough research.

 

Benefits aplenty 

When we think of ‘The Great Australian Dream’ we often picture a house in the ‘burbs with the traditional Hills Hoist, but the modern reality is very different. Many people are now choosing to live in units due to the sense of community and lifestyle they offer; it’s low-maintenance living often situated close to entertainment, employment and public transport.

Location is indeed one of the big benefits of buying a unit. Along with proximity to amenities making these properties more rent-able. Which often means fewer vacancies.

Units often provide investors with better yields too, since they’re highly rentable and the buy-in price is more affordable. This affordability is, of course, the great attraction for investors.

From a set and forget point of view units are also easier since the body corporate takes care of much of the maintenance. This may result in fewer ongoing costs, depending on the body corporate contributions. And don’t forget that depreciation for units can be higher since you can claim a share of the common property.

 

What should you look for?

investors steer clear of units

While there are plenty of advantages to buying units, if you don’t buy the right type of unit in the right location, then – like any investment – you likely won’t come out on top at the end of the day.

It’s often said that one of the major downsides of buying a unit is that you’ll get less capital growth than a house. And if you look at the overall figures that appears to ring true. According to the latest CoreLogic data, over the year to the end of August capital city house values rose by 7.2%, while units increased by 5.5%.

As seasoned investors know, however, markets are made up of many different sub-markets. These all perform differently, so taking the broad-based figures as gospel can be problematic.

Rather, what investors should be doing is drilling down to a local level and looking at the individual property they’re purchasing and the fundamentals of that market that can make it a success… or not.

So what should you be looking for when investing in units? Here are some of the factors to consider:

It’s not one size fits all

Although it would make life easier, unfortunately there are no hard and fast rules for investment success, including what type of property to buy.

Every property should be considered on its own merits, looking at all the fundamentals. Hence we can’t generalise and say investors should avoid all units.

There are certainly plenty of units increasing in value all over Australia, but equally there are those that are falling in value.

Do your research and you’ll get your purchase right.

The 14 Property Must Haves For Every Property Investor

Every investor – whether expert or amateur – should be looking for the same things in a property investment to ensure its success.

While there is no exact formula for buying a successful investment, it’s handy to have a checklist to consult to make sure you’re on the right track.

property must haves

Below are some of the fundamentals you should be looking for when buying. Be aware that this isn’t an exhaustive checklist. However, it can serve as property investment tips that will help guide your decisions.

Property must haves: