Removing Budget Confusion Over Claiming Depreciation

THE 2017 FEDERAL BUDGET (handed down by Treasurer Scott Morrison on Tuesday 9 May) includes proposed changes, which will affect residential property investors Australia-wide.

At this stage, our understanding is that depreciation claims relating to commercial properties won’t be affected. This is good news for anyone who owns a commercial property. [Read more…]

Depreciation Can Be a Cash Cow for Farmers

MANY COMMERCIAL PROPERTY investors will also own a rural property. However, they are often not taking advantage of the same depreciation benefits claimed for their investment properties. Did you know that …

You could claim $149,187 from your rural property?

The most recent Commonwealth Bank Agri Insights Report suggests that investment in Australian rural properties remains strong.

The report revealed that investment intentions have strengthened among cotton, beef, lamb, summer grain and wool producers, while horticultural investment intentions are at their highest level to date.

Adding to the expected increase in production, the report projects that a significant proportion of farmers intend to spend more money on items used on their properties. 25% of those surveyed nationally plan to purchase plant and equipment items, while 38% planned to spend on fixed infrastructure.

While BMT Tax Depreciation experienced substantial growth in the number of depreciation schedules requested by agricultural property owners over the past two financial years (a 36% increase during 2014-2015 and a 51% increase during 2015-2016), many farmers are still failing to consult with a specialist Quantity Surveyor to ensure their claims are maximised.

Given that farmers can experience times of financial hardship (particularly during droughts, floods or fluctuations in the price of goods being sold) the additional cash flow that depreciation claims can deliver to rural property owners is often vital.

 Here is an example …

To demonstrate the difference that depreciation claims can make for farmers, we looked at how BMT helped the owner of one dairy farm.

The farmer purchased a property for $1.75 million and on settlement they requested a depreciation schedule. A detailed site inspection completed by our expert team discovered they could claim deductions for the assets outlined in the table.

The table also shows the first full financial year deductions the dairy farmer could claim.

In the first full financial year alone, BMT found $149,187 in depreciation deductions for the assets listed.

As a dairy farmer, you are also entitled to claim additional capital works deductions for the barn and a homestead.

In total, the owner of a typical dairy farm with these assets and structures could expect to claim between $850,000 and $1.1 million over the life of the property.

Incentives outlined in the 2015 budget for primary producers mean that farmers are entitled to write-off a number of assets immediately.

This includes fences, dams, tanks and irrigation channels. However, the Australian Taxation Office does stipulate additional rules if owners are depreciating second-hand assets.

Bottom Line: As you can see, it’s vital to seek expert advice and to obtain a comprehensive depreciation schedule to ensure deductions are correct and maximised based on the individual circumstances and requirements of the property owner.


Common Property Deductions for Commercial Strata-title Owners

AN ESSENTIAL PART of ensuring commercial property owners claim the maximum depreciation for their property is taking advantage of any common property deductions which may apply.

Owners of all types of commercial property owners are entitled to claim deductions for the wear and tear that occurs to the building and its fixtures. Depreciation deductions fall under two classifications:

  • Capital works deductions (division 43) for the building structure
  • Plant and equipment deductions (division 40) for the easily removable or mechanical fixtures and fittings found within the building

If a property such as an office suite, industrial unit, or warehouse in a multi-unit complex is purchased in a development controlled under a strata-title body (or a strata title scheme), additional depreciation deductions will apply.

This is because owners are entitled to claim a portion of the depreciation for structures and assets contained within the common, shared areas.

Australian Taxation Office Tax Ruling 2015/3 provides clarification as to how common property is treated for tax purposes including detailed definitions of the types of strata-title ownership, which are deemed eligible.

Common property areas and shared infrastructure in commercial buildings which may result in additional capital works deductions for owners who purchase a lot in a strata title building include:

Some examples of plant and equipment assets found in common areas of commercial properties which can be claimed as a depreciation deduction include:

It is important to note that owners can only claim common property deductions for their portion of interest in the structure and assets contained. This is determined by their individual unit entitlement as per the strata plan.

However, when claiming plant and equipment assets, the deductions can be quite substantial, particularly as depreciation rules (such as immediate write-off and low-value pooling) can be applied.

The following table provides examples of the deductions BMT Tax Depreciation found for the owners of two commercial property types purchased via a strata-title arrangement.

Bottom Line: Apart from engaging a Tax Depreciation specialist, investors considering purchasing a lot within a strata-titled commercial building should also seek professional advice from their Accountant and Solicitor.


6 Tips for Commercial Property Owners in 2017

AS WE ENTER February, many investors are now implementing their annual New Year’s resolutions.

Commercial property owners often think about the ways they can reduce the costs of owning their property and running their business. However, when they do so, the deductions they can claim via depreciation are not always top of their list.

Many commercial property owners still do not maximise the depreciation deductions available from their commercial property, so this is a very good reason why they should add requesting a tax depreciation schedule to their annual resolutions for next year.

Claiming depreciation from commercial properties can be quite complicated.. There are many factors to consider which can easily lead to incorrect claims being made and deductions not being maximised, particularly when property depreciation is involved.

To assist the owners of commercial investment properties, here are six tips on property depreciation to consider in the New Year:

1. Pre-1982 Commercial property is not too old to claim depreciation

Both new and older commercial properties will attract some depreciation deductions. It is a myth that older properties do not attract a claim.

Although the Australian Taxation Office (ATO) places restrictions on claiming capital works deductions (depreciation for the structural element of a property for example roofs, walls and floors) there are no date restrictions for claiming depreciating plant and equipment assets.

The ATO advises that the owner of any commercial property in which construction commenced after 20 of July 1982 can claim capital works deductions.

Depreciation deductions for plant and equipment assets are calculated based on the individual effective life for each item set by the ATO.

Deductions for plant and equipment are also dependent on each assets condition and quality. As these items are rarely the same age as the property, generally having been updated over time, there are often significant deductions available to the owner for plant and equipment depreciation claims.

2. Claim renovations done by a previous owner of the property

Any renovations completed to an investment property can also be claimed, even if they were completed by a previous owner. This includes items which may not be obvious. For example new plumbing, water-proofing or updated electrical wiring.

For capital improvements of a structural nature to qualify as capital works deductions, the renovation must have commenced within the qualifying dates set by the ATO.

Recently installed plant and equipment items are also likely to receive higher depreciation deductions due to the increased costs involved in purchasing and installing these assets as well as the condition the assets are likely to be in when a specialist Quantity Surveyor makes their assessment.

3. Both tenants & owners can claim depreciation for any fit-out

Commercial tenants are able to claim depreciation for any fit-out they add to a property once their lease commences. This includes items such as desks, blinds, shelving, carpets, vinyl, fire fighting equipment and security systems.

If lease conditions mandate a tenant return the property to its original condition, they may also be able to claim a write-off for any remaining depreciable value available on scrapped assets.

This 100% deduction must be done in the same year as the item is removed from the property.

Any assets a tenant leaves behind after the tenancy has ended can also be claimed by the commercial property owner. Deductions for fit-outs can become very complicated, so it is important to consult with an expert.

4. Don’t wait if you have only just purchased a property

Often commercial property owners will wait until the next financial year to claim depreciation deductions if they have only just purchased a property. However by doing so, they could miss out on valuable cash that can be particularly beneficial after outlaying substantial funds to secure the property.

Specialist Quantity Surveyors use legislative tools, for example immediate write-off and low-value pooling, to make partial year claims more beneficial to property owners.

It is worth consulting an expert to find out what claims are available. Commercial property owners can also claim the tax depreciation schedule fee straight back in the same financial year if they arrange the schedule before the 30th of June.

5. Previous years tax returns can be adjusted

If a commercial property investor has not been maximising their deductions and claiming depreciation, the previous two financial year’s tax returns can be amended. A tax depreciation schedule can provide the details of any deductions missed for a commercial property owners Accountant to make a claim.

6. Get an expert to assess the property and perform a site inspection

To ensure that the correct deductions are claimed, make sure to speak with a specialist.

Quantity Surveyors are one of the few professionals recognised with the appropriate qualifications to estimate the construction costs of a building for depreciation purposes.

They will inspect the property to make sure every plant and equipment asset is identified and that claims for fit-outs are correctly noted for both the building owner and the tenant’s claim.

These Depreciation schedules make the process easy for both the owners, tenants and their Accountants to claim the maximum deductions possible for each party.

Bottom Line: Commercial property owners can get a free tax depreciation estimate by using the BMT Tax Depreciation Calculator. The calculator is available for online or to download as an app by clicking here.


Kick-start Your Business by Claiming Depreciation

starting-a-business

MOST PROPERTY investors also run their own business. And as such, you realise there are significant costs involved in starting any new venture.

There are expenses for equipment, stock, insurance, staff overheads and (if you don’t own the building) funds required to cover rent.

Whether you own or rent the building, there may also be costs involved in fitting out the new space to make it appropriate to open the doors for business. [Read more…]

Depreciation Benefits Fill a Pharmacist’s Prescription

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IT’S EASY FOR business people, like pharmacists, to get so caught up in their day-to-day schedule … that they don’t stop to think about what tax deductions they could be claiming. [Read more…]

Generate Cash Flow for Your Commercial Property

CLAIMING DEPRECIATION is paramount for commercial property owners and yet research suggests around 80% of owners fail to maximise the deductions available and therefore miss out on thousands of dollars in tax benefits.

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Commercial Vs Residential Property Depreciation

OFTEN INVESTORS considering purchasing an investment property will ask whether a commercial or a residential property will provide them with more deductions in the form of depreciation.

As you'll appreciate, there are many factors an investor needs to be aware of when making their choice between these two investment opportunities. Let's take a look at just some of the differences.

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Claim More From Your Home Business This Tax Time

IT'S ESTIMATED that close to one million businesses in Australia are home based and this sector is considered to be one of the fastest growing business sectors.

For those who choose to operate a business from home there are many benefits including a better work-life balance where you can adjust your hours to suit the needs of family or your busy lifestyle and the ability to avoid any costs involved in renting a space for your business.

One of the biggest benefits that often goes unrealised by those who work at home, is the opportunity to claim deductions for any of the depreciable assets used for the purpose of operating the business.

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Reduce Your Fit-out Costs Using Depreciation Deductions

STARTING A NEW business can be quite daunting, particularly if you're trying to do so within a strict budget.

On top of other initial start-up costs, such as purchasing stock or merchandise, arranging insurance, budgeting for staff overheads and (if you don't own the building) allocating funds to pay rent, there are often costs involved in installing assets to fit-out the new space before you can open the doors for business.

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Renovate and Flourish

MELBOURNE IS WELL KNOWN for its amazing selection of shopping, dining and entertainment. Consequently, more and more commercial property owners have joined the renovating bandwagon to produce popular hotspots for both local residents and those visiting.

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