FOR REAL ES­TATE AGENTS who have older prop­erty list­ings on their books, a re­minder about tax de­duc­tions can help se­cure in­vestor buy­ers for older prop­er­ties. Bradley Beer ex­plains.

Elite Property Manager - - Contents - Bradley Beer

While it's some­times true that older prop­er­ties will later re­sult in ad­di­tional ex­penses due to the need to com­plete more reg­u­lar re­pairs, many ex­penses in­volved in hold­ing an old or new in­come-pro­duc­ing prop­erty are tax de­ductible.

Re­mind­ing po­ten­tial in­vestors about the ex­penses they can claim at tax time can help to win over buy­ers who are de­cid­ing whether a prop­erty is right for them.

Of all the ex­penses in­vestors can claim, the one most of­ten missed is prop­erty de­pre­ci­a­tion. As build­ings get older and ex­pe­ri­ence wear and tear they de­pre­ci­ate. The ATO al­lows in­vestors to claim this de­pre­ci­a­tion as a tax de­duc­tion.

De­pre­ci­a­tion de­duc­tion falls un­der two cat­e­gories: • Cap­i­tal works de­duc­tions for wear and tear of the struc­ture and fixed items • Plant and equip­ment de­pre­ci­a­tion for the me­chan­i­cal and eas­ily re­mov­able items con­tained within the prop­erty, such as car­pets and air con­di­tion­ers Those who pur­chase older prop­er­ties are more likely to miss out on claim­ing the max­i­mum de­pre­ci­a­tion de­duc­tions avail­able. The main rea­son this oc­curs is be­cause of­ten th­ese in­vestors as­sume that their prop­erty is too old to re­ceive de­duc­tions.

This could stem from mis­un­der­stand­ing cur­rent tax leg­is­la­tion, which states that cap­i­tal works de­duc­tions are re­stricted to those prop­er­ties in which con­struc­tion com­menced af­ter 15 Septem­ber 1987. How­ever, this rule does not mean that own­ers of older prop­er­ties are un­able to claim de­pre­ci­a­tion.

On the con­trary, th­ese own­ers are still en­ti­tled to sub­stan­tial de­duc­tions for the plant and equip­ment as­sets con­tained within the prop­erty. If any ren­o­va­tions have been com­pleted more re­cently they could also be en­ti­tled to cap­i­tal works de­duc­tions. This is the case even if the ren­o­va­tions were done by the pre­vi­ous owner, as long as they were com­pleted within the ATO's leg­is­lated dates.

Re­search con­ducted by BMT Tax De­pre­ci­a­tion sug­gests that dur­ing the 2014–15 fi­nan­cial year, 21.5 per cent of de­pre­ci­a­tion sched­ules were for prop­er­ties built prior to 1987. BMT also found that, on av­er­age, own­ers of th­ese prop­er­ties could claim $4,445 in de­pre­ci­a­tion in the first fi­nan­cial year alone and $31,166 over the first 10 years.

It's im­por­tant that the in­vestor looks at both the be­fore-tax and af­ter-tax sce­nar­ios to get a true pic­ture of what the costs of own­ing the prop­erty would be.

The ex­am­ple (left) shows the dif­fer­ence that claim­ing de­pre­ci­a­tion would make for an in­vestor who is con­sid­er­ing pur­chas­ing an older three­bed­room house for $500,000.

The real es­tate pro­fes­sional helped the in­vestor by pro­vid­ing a rental ap­praisal. They were also able to help es­ti­mate the ex­penses in­volved in hold­ing the prop­erty, which to­talled $36,738. The agent con­tacted BMT Tax De­pre­ci­a­tion, who es­ti­mated the in­vestor could claim $6,000 in de­pre­ci­a­tion in the first fi­nan­cial year. The sce­nario shows that de­pre­ci­a­tion would im­prove the in­vestor's tax re­turn by $2,220 in the first year alone.

A spe­cial­ist Quan­tity Sur­veyor can pro­vide es­ti­mates for any list­ing, which can eas­ily be in­cluded in a sales in­for­ma­tion pack. ■

BRADLEY BEER (B. Con. Mgt, AAIQS, MRICS, AVAA) is the CEO of BMT Tax De­pre­ci­a­tion. Visit bmtqs.com.au.

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