BMT Tax Depreciation has some tips for investment property owners when it comes to claiming depreciation at tax time. Below are five ways to make sure you get what is yours.
1. Don’t miss out on depreciation deductions
Property investors are entitled to a range of tax deductions which help to lower taxable income and make owning an investment property more viable.
Some of the tax deductions available include council rates, the interest from a mortgage, property management fees, land taxes, strata fees, maintenance costs, insurance, accounting fees and depreciation.
Of these deductions, depreciation is the most commonly missed.
This is because it’s a non-cash deduction.
That is, investors do not need to spend any money to be eligible to claim it.
Research has shown 80 per cent of property investors are missing out on the depreciation deductions they’re entitled to.
To ensure that depreciation is being claimed correctly and maximised, investors should contact a specialist Quantity Surveyor, such as BMT Tax Depreciation, to organise a comprehensive depreciation schedule.
A BMT Tax Depreciation Schedule outlines all the deductions an investor can claim for their investment property. It lasts for forty years and the fee for preparing it is 100 per cent tax deductible.
During the 2017-2018 financial year, BMT Tax Depreciation found their clients an average of $8,212 in tax deductions in the first year claim alone for residential properties.
2. If you recently purchased an investment property, you can still make a claim this tax time
The Australian Taxation Office (ATO) allows investors to claim depreciation based on the number of days a property was available for lease.
A BMT Tax Depreciation Schedule makes partial year claims like this easy for the property investor and their accountant and can pro-rata deductions based on the percentage of time the property was available for rent.
3. Have you made improvements? Don’t forget to update your tax depreciation schedule
If improvements have been made to the property in the past financial year, like a renovation, it’s a good idea to get in touch with a Quantity Surveyor to see if you will require an updated depreciation schedule.
It’s important to be aware there is a difference between a repair and a capital works improvement, as this will affect the claim. The cost of any repairs can be claimed in full in the same financial year they are completed.
An improvement, on the other hand, is when you improve the condition of an item or property beyond that of when it was purchased. Such improvements are capital in nature and must be depreciated over time.
For this reason, if any renovations or improvements have been made to the property in the last financial year, the property investor should seek the advice of an experienced Quantity Surveyor to ensure their deductions are claimed correctly.
An updated tax depreciation schedule may be required after a renovation to capture all newly installed plant and equipment assets or capital works expenditure.
4. Discuss tax depreciation deductions with your accountant
An accountant will often refer property investors to a Quantity Surveyor or contact them on your behalf to arrange a schedule.
While they can process the deductions, they can’t estimate construction costs to provide you with the tax depreciation schedule.
Only a qualified Quantity Surveyor can do that.
Quantity Surveyors are one of the few professionals recognised under Tax Ruling 97/25 to have the appropriate construction costing skills to estimate building costs for depreciation.
However, not all Quantity Surveyors specialise in tax depreciation.
Only a tax depreciation specialist like BMT can be relied on to maintain detailed knowledge of all current ATO Tax Rulings relating to depreciation.
Once a tax depreciation schedule has been completed, an Accountant will input these deductions into the property investor’s annual income tax return.
5. Amend previous tax returns and don’t miss out on claiming past years’ deductions
Investment property owners often enquire about a property they have owned and rented for a number of years and they haven’t claimed depreciation deductions before.
The ATO allows tax returns to be easily adjusted for two years after the initial submission. This enables property owners to recoup some of the deductions that may have been missed.
It’s important to note a separate application will need to be submitted for each financial year requiring an amendment.
Income, depreciation and other claims made will impact the outcome of each tax return.
If you have missed or not maximised your claim in previous years, the depreciation schedule can be tailored within the eligible years.
BMT offers a guarantee to all clients that if we can’t find double our fee in deductions in the first full financial year, we won’t charge for our service.
This article provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such as it does not take into account your personal circumstances or needs. Professional advice should be sought prior to any action being taken in reliance on any of the information.