Too many property investors are missing out on important cash flow by neglecting depreciation

Many property investors are missing out on beneficial depreciation tax claims. The annoying thing is how often this happens, when it really doesn’t need to happen at all!

Tax depreciation is often an overlooked method of obtaining tax deductions on investment properties. It is a big help in enabling investors to minimise their tax liability and improve their cash flow. Sadly though, we often see situations where depreciation either isn’t maximised to its fullest potential, or worse yet, overlooked entirely.

The Australian Taxation Office (ATO) recognises that the value of capital assets reduces over time as they approach the end of their effective life. These assets can be written off as a tax deduction ie. ‘depreciation’.

What depreciation should I be considering?
If you own an investment property (new or old, large or small), two areas of depreciation are available:

1. plant and equipment
2. capital works on the building

Different items within a rental property have different rates of depreciation based on the effective life of the item. These items are identified by certified quantity surveyors, who inspect the property assets and then calculate its depreciation through their expertise and knowledge of which items are depreciable and how savings can be achieved.

To claim maximum tax benefits on an investment property the ATO encourages property investors to obtain a fully compliant tax depreciation report prepared by a certified quantity surveyor. You or your accountant will use this report when preparing your income tax return.

Further, some property investors may not realise that they don’t have to wait all year to benefit from the depreciation deductions available to them. Instead, they can improve their cash flow throughout the year simply by nominating to use a Pay As You Go (PAYG) withholding variation.

A PAYG withholding variation allows individuals to vary the amount of tax withheld by their employer in each pay to anticipate their tax liabilities. This means that they can take advantage of the deductions available to them regularly, rather than waiting until the end of a financial year for their tax refund. You should speak to your accountant about this.

When to obtain a property depreciation report

Ideally, a depreciation report should be obtained soon after the purchase of an investment property. This enables a quantity surveyor to separate the items included in the purchase price, from the expenses that will be incurred by the new owner in the future. This detailed analysis ensures the maximum investment property depreciation allowances can be claimed.

A depreciation report is critical documentary evidence required by the ATO to support any tax deductions for components of an investment property that are decreasing in value. All investment properties are eligible to have their assets depreciated where, generally speaking, construction costs are incurred after 18 July 1985 and structural improvements are incurred after 27 February 1992. This applies even if the previous owner paid for the construction. In the event that the original construction cost data is no longer available, the ATO stipulates that a quantity surveyor must assess this figure.

Where to start – immediate tax depreciation write-offs and the low value pool

Obtaining independent, professional property advice ensures investment property owners stay up to date with the intricacies of tax legislation and can make well-informed decisions that enhance cash flow. For instance, waiting until just before the close of the financial year to buy an asset for an investment property may entitle you to claim the full cost on your tax return for that year. For example, plant and equipment assets valued at $300 or less are generally able to be written off at 100 per cent in the financial year of acquisition.

Moreover, under the Low Value Pool Regulations, certain items can be depreciated more quickly. Items that enter the pool are depreciated at a set rate or 18.75 per cent in the first year but in subsequent years, the percentage rate of depreciation jumps up to 37.5 per cent on the diminishing total.

What can effective property depreciation save you?

In typical situations – say a commercial property investment of around $1,000,000 – using a quantity surveyor and well-prepared depreciation report can result in clear benefits. Potential tax deductions under a well-planned depreciation schedule could total in excess of $27,000 in the first year of claim and over $100,000 for a 10-year period following the purchase of the property. For an individual taxpayer on the top marginal tax rate of 49.5 per cent (2014/2015 individual tax rate), the tax saving would be $13,365 on a $27,000 tax claim.

Of course, depreciation is only one component of owning an investment property and the associated tax deductions. Other deductions could include:

• fees to property management agencies (SEE WHAT WE CHARGE VRS WHAT OTHERS CHARGE http://wp.me/p1qS3N-7YJ
• repairs and maintenance to the property and its fixtures (IMPORTANT INFORMATION TO NOTE:-

AT A GLANCE

• Property Management & the Sales of Properties with tenants in place
• Individual solutions to fit our client’s needs
• Body corporate management
• Competitive Commission Rates (CONTACT US FOR DETAILS)
• LET FEE FOR REFERRALS, We are a business built on 20 years of Referrals.
• NO Lease Renewal & Comparable Market Analysis’ Fees/Charges
• PHOTOS TAKEN ON ENTRY, tenants are shown about safety switches and water mains etc.  We meet all tenants on site.

                Hands on approach to all Property Investment Management Matters
• interest payments on mortgages over the property
• council and water rates
• property insurances  * smoke alarm compliance *Terri Scheer Landlords Insurance

The total deductions can be considerable and go a very long way to improving your tax bill at the end of the financial year and throughout your years of investment in the property.

Clearly, there’s a real advantage in obtaining a depreciation report on your investment property. Our recommendation is to make sure you have a good depreciation strategy, but consult your accountant and other advisers before you finalise this!

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ACT Excerpt From The 2015 April Market Report – Article by Your Investment Property 27-4-2015

Hand break slowly easing on housing market

Despite a dreary few years in the housing market over the past few years, Canberra could be ready to make a comeback. Alastair Lynn reports

In a state held under duress by activity in the public services, Canberra’s housing market is looking to negotiate its release. Significant fiscal consolidation, job shedding, cutbacks in services and concern over job security has impacted the local economy over the last three years. Fortunately in the early stages of 2015, there are signs indicating that this subdued market may be on the mend.

The latest CoreLogic RP Data Home Value Index shows Canberra’s housing and unit values increased by 0.9% and 3.68% respectively last month. While overall dwellings are down 0.34% on this time the previous year, experts are confident that the indicators for growth are present.

“Certainly early signs have shown improvements in activity in the Canberra market, says Andrew Wilson, senior economist at Domain Group.

“The prospects are becoming more positive that the volatility in house price growth, particularly buyer activity, will end and we’ll see a more consistent outcome from the market that I think will be driven by lower interest rates.”

Data released over the last three months has certainly presented a reason for optimism.

Domain Group’s house price report for the December quarter showed the median house price grew 1.4% while units saw a 1.1% increase.

Wilson says that strong auction numbers at the end of 2014 and numbers tracking higher this year indicate that buyer activity is increasing. “There are early signs that confidence is gradually returning to the Canberra market and starting to filter back into prices growth,” he says.

With the CoreLogic RP Data Home Value Index showing the median house price at $580,000 and $410,000 for units, property in Canberra is not cheap.

However, Wilson pointed to buyer activity being generated more prominently in the middle and upper price range suburbs.

“There’s some positive signs for the Canberra market, however, it will always be hostage to what happens in terms of spending in the public services, so we need to be mindful of that.”

It’s not all doom and gloom
While Canberra has felt some impacts from the federal government’s plans to cut the public service, it does not spell the demise of the capital’s workforce.

“As is typical, when time passes by during the first term of a federal government, it finds it more difficult to implement cuts than intended,” says Linda Phillips, economist for Propell.

With unemployment levels at 4.5%, this does show a rise of 0.8% from 2014. However, ACT still holds the second lowest unemployment rate in the country, second only to NT.

Phillips says that as the situation is returning to normal, some growth in 2015 should be expected.

“Canberra in general has better prospects for investment in the next year, though newer properties, or those with redevelopment potential, will do better than average.”

SUBURB TO WATCH
Harrison: Developing infrastructure drives growth

Cinemas, Olympic swimming pools and excellent sports fields are just some of the developing infrastructure in the up and coming suburb of Harrison. While some suburbs in Canberra have been struggling due to the federal government’s cuts to the public service, Harrison has been going from strength to strength with a 12-month growth of 8%.

Situated just 2km east of the Gungahlin Town Centre, everything a couple or family could need is easily accessible. Primary schools, shopping centres, parks, medical centres and restaurants are all within a stone’s throw of virtually anywhere in the suburb. With the Canberra CBD only 10km away, the drive into town via the Federal Highway takes as little as 14 minutes.

The Land Development Agency has put a lot of time and effort over the last several years to Harrison and the surrounding suburbs. This in turn is driving interest in the area. Gungahlin Town Centre is now one of Canberra’s fastest growing hubs. Along with amenities like clubs, department stores and libraries, significant effort has been put into transport. A network of cycle ways and pedestrian paths now criss-cross the suburb. Together with well serviced bus routes, Harrison is well connected with the city and neighbouring suburbs.

Harrison is also a lot less expensive than nearby Nicholls ($500,000) and Forde ($522,000). Closer proximity to shopping centres and the CBD makes the area more appealing to both young or established couples.
With interest rates at their lowest for more than 50 years, there are some great rates available.

Source Your Investment Property 27-4-2015

What is going on with the Nation’s Capital?

What’s going wrong with home building in the nation’s capital?
Figures this week that showed that building approvals hit new highs nationally but there is concern that in Canberra things are taking a turn for the worse. The Property Council of Australia says that in the ACT there was a drop of more than 25 per cent in trend terms in the number of approvals this January compared with 2014 levels. The Property Council’s ACT executive director Catherine Carter says that reforms are needed in order to reverse the weakness of the region: “The ACT is simply not benefitting from domestic and foreign investment at the moment and there is also a potential emerging issue around building approvals not converting to actual starts due to costs, delays and obstructive policy settings.”
While there is continued pressure on the government and regulators to curb foreign investment, Carter says that would be a bad thing for Canberra and surrounding areas: “We can’t afford to be discouraging foreign investment, which is needed to turning approvals into actual builds.” She says that building is a powerhouse of the economy and policy reforms are needed to avoid it being stunted.
Source: Property Council of Australia