Posts Tagged ‘ATO’

“You can claim a deduction for certain expenses you incur for the period your property is rented or is available for rent”  Monika Bonet, Principal of Raine & Horne Glenelg said.

Ms Bonet further noted “However, you cannot claim expenses of a capital nature or private nature – although you may be able to claim decline in value deductions or capital works deductions for certain capital expenditure or include certain capital costs in the cost base of the property for capital gains tax (CGT) purposes.”

Types of rental expenses

Ms Bonet stated that there are three categories of rental expenses – those for which you:

• cannot claim deductions
• can claim an immediate deduction in the income year you incur the expense
• can claim deductions over a number of income years.

For a detailed understanding of all rental property expenses Ms Bonet  recommend that you visit the following web link of the ATO and download a copy of their 2008

http://www.ato.gov.au/content/00131327.htm

This guide explains how to treat rental income and expenses, including how to treat more than 230 residential rental property items.

This blog post is brought to you by Raine & Horne Glenelg, your Glenelg Real Estate Agents and Glenelg Property Management Experts.

 Angus Raine, CEO of Raine & Horne, says almost 50% of landlords will miss out on potentially thousands of dollars by failing to claim depreciation on their investment properties before June 30.

He notes, “Many property investors either don’t maintain an accurate depreciation schedule or have a schedule that is out-of-date.” A depreciation schedule shows depreciable assets such as carpets, blinds, curtains, air-conditioning, fire alarms systems, light fittings and hot water units.

Angus explains, “Landlords can claim up to 12% on depreciable assets and also in many cases 2.5% of the building cost (not the value) of residential properties built on or after 18 July 1985. Depreciation can also be claimed on the cost of improvements made after 26 February 1992 to older properties.”

It’s worth remembering that the cost of a depreciation schedule is also tax deductible. Landlords can expect to pay between $650 and $700 for a depreciation schedule. But get a schedule before June 30 and it can be used to minimise your tax this financial year.

Peter Bembrick, a tax partner with accounting firm HLB Mann Judd Sydney says many landlords are also failing to maximise their full depreciation entitlements. “Often investors depreciate expenses such as carpets, light fittings and blinds, but fail to depreciate property owned by the body corporate that they have a part share in.”

Pre-June 30 tax tips for landlords

1.       Claim all deductions and depreciation prior to June 30.

2.       If you don’t have a depreciation schedule, consider getting one – they are tax deductible and can trim thousands of dollars from your 2008/09 tax bill.

3.       Prepay up to 12 months interest in advance on an investment property mortgage and claim a tax deduction for 2008/09.

4.       Where possible, time a property sale for after June 30 to avoid triggering a capital gains tax liability this financial year as personal tax rates will fall from 1 July 2009.

This story was brought to you by Raine & Horne Glenelg – Your Glenelg Real Estate Agents and Glenelg Property Management Experts – We’ll look after You.

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The Australian Taxation Office (ATO) differentiates between repairs and improvements. To ensure the best results are obtained from an investment property, it is important that you understand the difference between the two claim options.

Deductible Repair: Returning items or property to their original state; an exercise in retaining the value of the item or property. Repairs attract an immediate 100% deduction in the year of expense.

Improvement: Improving the condition of an item or property beyond that of when it was purchased. Improvements are capital in nature and as such, must be depreciated over time.

When determining whether a repair or improvement has been made, often three basic tests are employed. They are:

1. Has the condition of the property been improved beyond the original condition at the time of purchase? When an item was partially or fully replaced, it needs to be determined whether it was done due to the item being damaged, or done to improve what was previously there.

2. Has the property been established as an income producing property? The ATO states that repairs must relate directly to the wear and tear or other damage that occurred as a result of renting out the property.

3. Was the asset partially replaced, or replaced in its entirety? Partially replacing an item, like a fence panel, due to damage or wear and tear, often implies that a repair is being carried out. However, if a fence panel needs to he replaced, but the property owner decides to replace the entire fence (for no apparent reason except to improve the property’s value), this will he classified as an improvement.

Important Points

When completing repairs, they should be carried out when the property is tenanted. The ATO will allow repairs as a deduction only if the property is being used for income producing purposes at that time. However, if tenants have recently moved out and repairs need to be made due to damage caused by those tenants, the repairs will also be allowed as a deduction as the damage occurred when the property was income producing. It is also important to consult your accountant when making a repair claim, as it becomes a 100% immediate deduction.

It is important to note that an initial improvement at the time of purchase will not give rise to an immediate tax deduction. Property investors may be able to claim the cost of an initial improvement under the special construction write-off provision, or create a plant or article which may be depreciated over time, but it wilt not create an immediate deduction in its own right.

At Raine & Horne we facilitate a range of professional services to unlock cash flow for our Landlords. If you are a Landlord, it is important that you get professional advice before you make any improvements to your investment property.

Call Raine & Horne Glenelg today on 8376 8844 to find out how we can help you maximize your depreciation deductions from an investment property.

This article was brought to you by BMT Quantity Surveyors in association with Raine & Horne Glenelg – Your Glenelg Real Estate Agents and Glenelg Property Management Experts – We’ll look after You.

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