New depreciation legislation for Australian property investors

In one of the most dramatic changes to property depreciation legislation in more than 15 years, Parliament has passed the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 as at Wednesday 15th November 2017, with the Bill now legislation.

The new legislation means owners of second-hand residential properties (where contracts exchanged after 7:30pm on the 9th of May 2017) will be ineligible to claim depreciation on plant and equipment assets, such as air conditioning units, solar panels or carpet.

The good news is that there are still thousands of dollars to be claimed by Australian property investors, as there has been no change to capital works deductions, a claim available for the structure of a building and fixed assets such as doors, basins, windows or retaining walls. These deductions typically make up between 85 to 90 per cent of an investor’s total claimable amount.

Previously existing depreciation legislation will be grandfathered, which means investors who already made a purchase prior to this date can continue to claim depreciation deductions as per before.

Investors who purchase brand new residential properties and commercial owners or tenants, who use their property for the purposes of carrying on a business, are also unaffected.

Owners of second-hand properties who exchanged after 7:30pm on the 9th of May 2017 will still be able to claim depreciation for plant and equipment assets they purchase and directly incur an expense on.

To read more about the new depreciation legislation and how this applies to a range of property investment scenarios, download our comprehensive white paper document Essential facts: 2017 Budget changes and property depreciation.

It’s more important than ever to work with a specialist Quantity Surveyor to ensure that all deductions are identified and claimed correctly under the new legislation. Each and every BMT Tax Depreciation Schedule will be tailored to suit an individual’s property investment scenario, ensuring that all deductions are maximised.
For investors who are planning on selling a property affected by the new rules, a BMT Tax Depreciation Schedule can be provided to assist them and their Accountant to perform a calculation adjustment for CGT liabilities.

Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. 
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.

12 things to consider when purchasing property

There is no doubt that purchasing a property can be one of the most stressful times in your life. This can be an emotional time and there are a lot of factors to consider when choosing a property that will best suit your needs. So, to hopefully make the experience a little bit easier, we’ve put together a list of what makes a good property…

1. Location, Location, Location

The location of a property is the most obvious factor that determines what a property is worth. Is it close to the city centre? Is it in a sought-after waterfront location? Is it close to public transport, shops, schools and restaurants? People generally want to live close to where they work and where they enjoy their free time, so properties in employment and recreational hubs will be more expensive. Then there’s the fact that some suburbs simply have a better reputation than others due to factors such as low unemployment or crime rates. Two homes just streets apart can differ substantially in value simply due to different postcodes.

2. Population and demographics

The more people who want to live in a particular suburb, the greater the demand for properties in that suburb. At the same time, the type of people living in the area will also influence property values. For example, if young families are the dominant demographic group in the area, multi-bedroom houses will be more sought-after than small apartments.

It’s the people that make a community special!

3. Size and facilities

The features and overall size of a property will also influence its worth. A four-bedroom house is likely to fetch more than a two-bedroom house in the same area, while features such as extra bathrooms, garages, swimming pools and outdoor entertaining areas can all have an impact on property values. In busy cities, the absence or abundance of parking opportunities is another critical factor, while the functionality of a home’s layout is always important.

4. Aesthetics

The street appeal of a property should never be underestimated. First impressions are very important in real estate, so the way a house looks from the outside can instantly add or subtract tens of thousands of dollars from its value.

5. Investment Potential

The value of a property is also influenced by the potential it presents to investors. Factors such as the rental income an investor can expect from a property and the capital growth they will enjoy when they later sell the property all play their part.

“Know what you own, and know why you own it.” – Peter Lynch

6. Views

What is the value of a view? This topic has always been subjective, with some claiming that the view affects between 5-8 percent of the purchase price while others say there is no premium for a view. Ultimately, when a valuer assesses your house, the view is considered in their overall report; whether it adds or decreases value, it is evident that the view will affect the price.

7. Vicinity to infrastructure

Choosing an area that has existing and well developed infrastructure is a key indicator that properties in that suburb will maintain their value and continue to attract buyers over the long term, whether purchased as an investment or as an owner occupier. Shopping centres, schools and public transport are important to ensure the continued growth of the value of the suburb. New or planned developments may take time but will drive growth/value in the area over the long term.

Development on the Sunshine Coast has taken off! Check out our recent article on the Sunshine Coast infrastructure boom.

8. Not flood prone

It is important to ensure that the area in which you are purchasing is not subject to flooding. There is a great tool that can be found on the Department of Natural Resources and Mines website called the FloodCheck Map. This tool is free, available for anybody to access and is relevant within the Queensland region. You will be able to view the likely extent of flood plains, historic flood lines dating back to 1893, including flood and cyclone imager for 2010-2011, data relating to drainage basins, river gauges and flood studies and flood simulations for selected towns.

Source: http://dnrm-floodcheck.esriaustraliaonline.com.au/floodcheck/

9. Reputation

If you are purchasing a property through a developer/builder it is wise to research their past projects as that will give you a good indication as to whether the expectations were met. Being comfortable with a company that also aligns with your values can be important in ensuring the whole process of purchasing a property is stress free and ultimately what you signed up for.

Mosaic, who are one of our build partners, live by the mantra ‘We deliver what we say we are going to deliver’

10. Not on a main road

Due to our hot climate in Australia, properties tend to be built more for ventilation than for noise suppression. A property on a main road can therefore be considerably noisy, while access to the property can be reduced especially during peak hour periods. These properties typically take longer to sell/rent out.

“Roads were made for journeys, not destinations” – Confucius

11. Well maintained

A well-maintained property retains value for longer and attracts better quality tenants. Investing in a new coat of paint or new carpets can produce a higher rental return and the potential for longer rental tenancies.

12. Tenant Quality

The quality of tenants can sometimes be hard to determine, as most vetting is done through a property management company. So good communication between you and your property manager is imperative. Studies have shown that having a pet friendly rental property can increase your rental potential and prolong tenancies in general, while properties with backyards are more attractive to families with small children. By understanding your rental market and target demographic, you can ensure that your property remains tenanted for longer periods of time.

Source: https://legaltemplates.net/blog/bad-tenants-to-avoid-and-evict/

Article originally published by Mosaic Property Group, one of Triple Zero Property’s  build partners. Used with permission.

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.

Diminishing value 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.

Prime cost 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 changes outlined in legislation (section 2 of Treasury Laws Amendment Bill 2017), investors who exchanged 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. They can claim deductions on plant and equipment items they purchase and directly incur the expense. 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. 

Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.  Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.