The nine experts you should include on your property investment team

The nine experts you should include on your property investment team

While property investing is one of Australia’s favourite past times, it doesn’t mean it’s always an easy ride. There are ups and down and certainly rewards to reap, but you do have to put in some ground work and planning to become a successful investor.

While this can seem overwhelming at times – especially for first time investors – the good news is that you don’t have to go it alone. There are professionals whose very job it is to help you on your way. In fact, it is recommended you have a property investment team of sorts – each player with a different role to help you towards investing success.

As the team captain, you get to pick the players. Here are the experts you should include on your team:

  1. Financial Advisor

A common goal of property investing is financial reward. But you need to use your money wisely. A Financial Advisor will look at your financial situation holistically and ensure any investments or acquisitions are appropriate and supports your future financial outcomes. They can help you determine your specific financial goals and implement a realistic strategic plan to achieve them. Multiple investments are generally required to achieve the desired financial outcomes in retirement, therefore a strategic plan is highly effective in making certain you move closer to obtaining them.

  1. Taxation Accountant

An Accountant will help you manage your money and advise of any tax changes you should know about, as well as help you claim everything you’re entitled to. With the ever-changing legislation around allowable tax deductions professional advice in this area is crucial to your investment return. Teaming up with a Financial Advisor and a Taxation Accountant can significantly reduce your exposure to risk and increase the opportunity for best returns.

  1. Real Estate Agent or Buyer’s Agent

When you’re searching for your first or next investment property, it’s good to have a Real Estate Agent or Buyer’s Agent you can trust. Their commission should be transparent, they should have a thorough knowledge of the local market, have a deep understanding of your requirements and be proactive in helping you find your ideal investment.

  1. Property Manager

While some investors may be tempted to self-manage their property, there are a lot of risks involved in this approach if you don’t have the knowledge or time to manage this effectively. A good Property Manager will help you secure quality tenants, be on top of any damage, will save you time, tell you of any requirements and will help take some of the emotion away from the process. As their fees are tax deductible this shouldn’t be looked at as an unnecessary expense.

  1. Mortgage Broker

In the past year, Mortgage Brokers have been gaining market share in Australia.  The 2017 Property Investment Professionals of Australia (PIPA) investor confidence survey revealed that 83 per cent of respondents are hoping to finance their next loan via a Mortgage Broker, up from 71 per cent last year. If you’re looking to purchase a new investment property, it may be worth speaking with a mortgage broker to help you find the best product to suit your situation and your finances.

  1. Conveyancer

There’s a lot of complicated paperwork involved in purchasing a property including the contract of sale, mortgage documents and other paperwork related to the transaction. It’s best to enlist the help of a qualified and reputable Conveyancer to do this legal legwork for you. They’ll help decipher any complicated terms and conditions and translate the legal jargon. While you’re not legally obliged to hire a conveyancer, it should help you reach settlement sooner and with a lot less stress.

  1. Building Inspector

It’s essential that you get a building and pest inspection carried out before you buy a property. The last thing you want is to buy a property only to later find it’s actually riddled with termites or structurally unsound. A trusty Building Inspector will help you determine if you have a quality property on your hands and can save you from forking out thousands on surprise repairs and maintenance after the time of purchase.

  1. A mentor

It’s great to have someone who is an experienced investor who you can turn to for advice and learn from their real life experiences. Investing in property has its ups and downs so it’s nice to have an investor friend on your side to help, even if it’s just to chat about your situation and investing plans.

  1. Yourself

While you don’t need to be an expert to invest in property, it’s important to arm yourself with some basic knowledge of the market to keep on track of how your investment is performing. It will also give you more confidence when dealing with other professionals to ensure you’re not being taken for a ride. There are many resources out there you could use to improve your investing knowledge from books, blogs, magazines and online resources to information nights and investing courses.

Making your primary place of residence an investment property

Making your primary place of residence an investment property

An increasing number of Australian home owners are becoming property investors. In some scenarios, it is by turning their primary place of residence into an income producing investment property.

There are several reasons why a home owner may turn their primary place of residence into an investment property. The owner may relocate interstate for work, travel for an extended period of time overseas, or they may simply decide to purchase and occupy another property as it may be more financially beneficial to rent out their home and rent themselves.

Before renting your own home, there are a number of factors associated. Investors should contact a specialist Quantity Surveyor such as BMT Tax Depreciation and request a tax depreciation schedule that will maximise the cash returns for the owner once the property starts generating an income.

Turning Primary Residences to investments 2

Changing tax situation

When an owner decides to turn their primary place of residence into an income producing property, their tax situation is transformed.

Expenses in holding the property such as interest costs, rates and management fees will become tax deductible making owning the property more affordable. The rent also becomes assessable income.

Another tax deduction available for the owner while the property is income producing is depreciation. Depreciation deductions can be claimed in two ways; as a capital works deduction, which refers to the structural component of the building, and for the plant and equipment assets* contained in the property.

The Australian Taxation Office allows income producing property owners to claim this depreciation as a deduction when they complete their annual tax assessment with their Accountant.

Turning Primary Residences to investments 3

A BMT Tax Depreciation Schedule works out the exact number of days that a property was rented in the first financial year of the property being income producing. This gives the property owner’s Accountant an exact total deduction available for a partial year claim.

A BMT Depreciation Schedule will also include any capital improvements that have been made to a property, even if improvements were completed while the property was a primary place of residence.

Capital gains implications

A primary place of residence is exempt from Capital Gains Tax (CGT), however when a home becomes an investment property some CGT may be triggered if the property is eventually sold. There are numerous scenarios that will reduce or create a total CGT exemption. It is important to discuss this with an Accountant as each individual scenario is different depending on the property’s first use, how long someone lived in the property, how long it is income producing and if the owner has purchased another primary place of residence.

* Under new legislation outlined in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 passed by Parliament on 15th November 2017, investors who exchange contracts on a second-hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on previously used plant and equipment assets. Investors can claim deductions on plant and equipment assets they purchase and directly incur the expense for. Investors who purchased prior to this date and those who purchase a brand new property will still be able to claim depreciation as they were previously. To learn more visit www.bmtqs.com.au/budget-2017 or read BMT’s comprehensive White Paper document at www.bmtqs.com.au/2017-budget-whitepaper

Source: BMT Tax Depreciation

Six Capital Gains Tax (CGT) and depreciation facts for property investors

Six Capital Gains Tax (CGT) and depreciation facts for property investors

CGT can be a complex topic for investors to understand, particularly as the answer to the above question can really depend on the scenario of the individual property investor.

Introduced on the 20th of September 1985, CGT is basically the tax payable on the difference between what it cost you to purchase an asset and the amount you received when you disposed of it. When you sell a property, this triggers what is called a ‘CGT event’ and the owner will either make a capital gain or loss on the property. To calculate your capital gain or loss, use the following method:

Tax Depreciation method

To help explain the implications of property depreciation on CGT, here are six facts investors should be aware of:

Tax Depreciation method

1. What is property depreciation?

Property depreciation is the wear and tear of a building and the plant and equipment items within it. The Australian Taxation Office (ATO) allows owners of income producing properties to claim this depreciation as a deduction in their annual tax return, meaning they pay less tax. Property depreciation is made up of two main parts; capital works deductions and plant and equipment depreciation.

 2. How do capital works deductions affect CGT?

Capital works deductions are available for the wear and tear on the structure of the building. Examples of items which can be claimed include bricks, walls, floors, roofs, windows, tiles and electrical cabling. The capital works deductions will reduce the cost base of the property which will add to the capital gain and therefore increase the amount of CGT applicable for the owner of the property.

3. How does plant and equipment depreciation affect CGT?

Depreciation deductions can be claimed for the mechanical and easily removable plant and equipment assets contained within an investment property. When a property is sold, a gain or loss is calculated separately on these items. As outlined by the ATO on their website, you can make a capital gain if the termination value of your depreciating asset is greater than its cost. You make a capital loss if the reverse is the case. That is, the asset’s cost is more than the termination value.

 

Tax Depreciation method

 4. What CGT exemptions apply for a place of residence?

Properties which are owned by someone who resides, occupies or lives in the property as their home are exempt from CGT so long as the dwelling is used mainly for residential accommodation and is located on land under two hectares in size.

If the owner of a primary place of residence chooses to move out of their home and rent it out, a CGT exemption is available for up to six years after they have moved out so long as they don’t own another primary place of residence.

If the owner moves back into their investment property, then moves out and rents the property again, a new six year period will commence from the time they last moved out of the property. There is currently no limit to the number of times a property owner can do this so long as each absence is less than six years.

Only one property can be classed as a primary place of residence and therefore exempt from CGT at any one time with the exception of the following rules which apply if both properties are treated as the owner’s primary place of residence within a six month period:

  • The old property was the owner’s primary place of residence for a continuous period of at least three months in the twelve months before they sold it
  • An owner did not use the property to provide an assessable income in any part of the twelve months when it was not their primary place of residence
  • The new property becomes the property owner’s primary place of residence

5. Are property investor’s eligible for a discount?

A 50 per cent exemption on CGT is available to individuals or small business owners who hold an investment property for more than twelve months from the signing date of the contract before selling the property.

6. Is it worthwhile to claim the property depreciation then?

The short answer is yes. During the term of ownership, capital works and plant and equipment can be claimed as a deduction at the investor’s marginal tax rate. These deductions will reduce tax liabilities, therefore generating additional cash flow for the investor each year.

When a property is sold, if the owner has held the property in their name for more than twelve months, the owner will be eligible for the 50 per cent exemption. This means that only 50 per cent of the capital works deductions during ownership will carry through to the ‘CGT event’, making it far better for a property investor to claim the capital works deductions and take advantage of the additional cash flow during ownership. Depreciation claims also provide an opportunity for the property owner to invest further or reduce loan liabilities.

When considering selling an investment property, it is recommended that investor’s seek advice from their Accountant about the implications of CGT and the exemptions available. A specialist Quantity Surveyor can also provide advice on the depreciation deductions for any investment property.

Source: BMT Tax Depreciation 

Pick the method to suit your investment strategy

Pick the method to suit your investment strategy

The Australian Taxation Office (ATO) allows investors to choose between two methods of claiming depreciation on plant and equipment assets*. These are the diminishing value and the prime cost methods of depreciation.

When an investor makes their depreciation claim, they can choose only one of these methods, so it is important for them to understand how this choice will affect their investment returns.

Both the diminishing value and the prime cost methods claim the total depreciation value available over the life of a property. However, the two methods use different formulas to calculate depreciation deductions, achieving different short and long-term cash flow positions for the property investor.

Under the diminishing value method, the deduction is calculated as a percentage of the balance you have left to deduct. The formula a Quantity Surveyor will use to calculate depreciation using the diminishing value method is shown below.

Tax Depreciation method

Under the prime cost method, the deduction for each year is calculated as a percentage of the cost. The formula a Quantity Surveyor will use to determine the amount of depreciation deduction under the prime cost method is shown below.

Tax Depreciation method

The strategy of the individual investor must be considered when determining which method is the best choice for them.

If an investor makes their claim using the diminishing value method, they are claiming a greater proportion of the asset’s cost in the earlier years of the effective life of the asset as set by the ATO, therefore receiving greater deductions in the earlier years of owning the property. Alternatively, by selecting the prime cost method the investor is claiming a lower but more constant proportion of the available deductions over a longer period.

No matter what strategy an investor has, it is recommended they seek advice from an Accountant when making a decision.

A specialist Quantity Surveyor will always be able to provide a Capital Allowance and Tax Depreciation Schedule that outlines the depreciation deductions available to claim using both methods for comparison.

* Under new legislation outlined in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 passed by Parliament on 15th November 2017, investors who exchange contracts on a second-hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on previously used plant and equipment assets. Investors can claim deductions on plant and equipment assets they purchase and directly incur the expense for. Investors who purchased prior to this date and those who purchase a brand-new property will still be able to claim depreciation as they were previously. To learn more visit www.bmtqs.com.au/budget-2017 or read BMT’s comprehensive White Paper document at www.bmtqs.com.au/2017-budget-whitepaper.

Article provided by BMT Tax Depreciation

Do depreciation deductions apply to you?

Do depreciation deductions apply to you?

Owners of income producing properties are eligible to claim tax deductions for a number of expenses involved in holding a property.

Most investors are aware of some of the deductions they are entitled to; for example, they know they can claim their Property Manager’s fees, council rates and any repairs and maintenance costs. However, all too often investors are unaware of property depreciation and as such they frequently miss out on the valuable returns these deductions can provide them with when they complete their annual income tax returns.

To help investors maximise the deductions they can claim from an investment property, let’s look at some key points to help you understand depreciation.

Tax Depreciation

What is depreciation?

Over time, any building and the assets contained within it will experience wear and tear. Legislation allows the owners of any income producing property to claim this wear and tear as a tax deduction called depreciation. Unlike other expenses involved in holding a property, such as repairs and maintenance for instance, an investor does not need to spend any money to be eligible to claim it. For this reason, depreciation is often described as a non-cash deduction.


Types of depreciation deductions available The Australian Taxation Office (ATO) clearly defines two types of depreciation allowances available for property investors:

  • Division 43 capital works allowance
  • Division 40 plant and equipment depreciation*

The capital works allowance refers to what an investor can claim for the wear and tear that occurs to the structure of the property. This includes any structural improvements that may have been made during a renovation. As a general rule, any residential building where construction commenced after the 15th of September 1987 will entitle their owner to capital works deductions at a rate of 2.5 per cent per year for up to forty years. Owners of older buildings constructed prior to 1987 should still find out what deductions are available, as often these buildings will have undergone some form of renovation which can result in capital works deductions for the owner.

Tax Depreciation planning

Who should you contact to calculate and maximise your deductions?

Often an investor will make the mistake of thinking their Accountant will claim all of the deductions available in their investment property. When it comes to depreciation, however, it is important to consult an expert in this area.

Legislation recognises Quantity Surveyors as being one of a few select professionals with the knowledge necessary to estimate construction costs for depreciation purposes.

A specialist Quantity Surveyor will use their skills to provide a depreciation schedule that outlines the deductions an investor can claim for any specific property at the end of each financial year. An Accountant will then use the figures outlined in the depreciation schedule when submitting the investor’s individual income tax return at the end of financial year.

How will depreciation help an investor?

The additional funds an investor receives by claiming depreciation can have a significant impact on their available cash flow. On average, an investor can claim between $5,000 and $10,000 in depreciation deductions in the first full financial year.

 

Article provided by BMT Tax Depreciation.