Tax time can be daunting for property investors, but it doesn’t have to be. There are several simple ways to get organised before tax time and ensure the biggest tax refund possible.
Here are five ways property investors can maximise their tax refund:
Most property investors are aware of some of the deductions they’re entitled to. For example they know they can claim management fees, council rates and any repairs and maintenance costs. However, there is one deduction that is frequently missed – property depreciation.
Depreciation refers to the wear and tear that occurs to a building and its assets over time. Legislation allows property investors to claim this wear and tear as a tax deduction.
The additional funds an investor receives by claiming depreciation can have a significant impact on their cash flow. For example, in the 2017/2018 financial year BMT Tax Depreciation found residential property investors an average first year deduction of $8,212.
Organise a tax depreciation schedule
Property investors should organise a tax depreciation schedule with a qualified Quantity Surveyor to ensure they’re claiming all available deductions for their investment property.
A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of the property, broken down into capital works allowances and plant and equipment deductions.
Capital works deductions cover the structural elements of a building and the items deemed to be permanently fixed to it. Owners of residential buildings in which construction commenced after 15th September 1987 are eligible to claim capital works deductions at 2.5 per cent over forty years.
Plant and equipment assets include items which can be easily removed from the property. The depreciation rate for plant and equipment assets is dependent on the item’s condition, quality and effective life as set by the Australian Taxation Office (ATO).
A BMT Tax Depreciation Schedule is 100 per cent tax deductible and lasts forty years.
Amend previous tax returns
If an investor has owned an investment property for several years but hasn’t claimed any depreciation deductions, the ATO allows two previous tax returns to be amended.
A BMT Tax Depreciation Schedule can help property investors reclaim any missed deductions from past financial years and boost their cash return.
Claim for renovations and improvements
Renovation and improvements can add to the depreciable value of an investment property so it’s important for investors to understand their differences.
Repairs are considered work completed to return an item or property to its original state in order to retain value, such as replacing part of a damaged fence. Maintenance is considered work completed to prevent deterioration to a property.
Any costs incurred to repair or maintain a rental property can be claimed as an immediate 100 per cent deduction in the year of the expense with the help of an Accountant.
A capital improvement occurs when the condition or value of an item or property is enhanced beyond its original state at the time of purchase, such as renovating a kitchen. Improvements are capital in nature and must be depreciated over time.
Consider instant asset write-off and low-value pooling
Depreciation methods such as instant asset write-off and low-value pooling can help boost an investor’s cashflow.
An immediate write-off applies to any item within an investment property with a value of less than $300, regardless of how long the property has been owned and rented. Investors are entitled to write-off the full amount of the asset in the year of purchase.
Low-value pooling is a method of depreciating plant and equipment assets which have a value of less than $1,000. Any plant and equipment assets with a value of less than $1,000 can be written off at an accelerated rate. Items can be depreciated at 18.75 per cent in the first year and 37.5 per cent each year thereafter.
Article provided by BMT Tax Depreciation
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation