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Rental Property Depreciation

 

The depreciation deductions that often go unclaimed

 

Depreciation continues to be one of the most common deductions missed as research suggests that just 20 per cent of property investors maximize the deductions they can claim.

 

On average, an income producing property owner can expect to claim between $5,000 and $10,000 in depreciation deductions in the first financial year alone. These deductions play a vital role in helping property investors to improve their available cash flow and reduce the costs of holding a property.

 

With such high numbers failing to maximize depreciation, investors often ask what items are most often missed or are rarely claimed to avoid missing out on deductions in the future.

 

To assist investors, our preferred Quantity Surveyors (BMT Quantity Surveyors) have compiled a list of common assets missed and more obscure assets rarely claimed as shown below –

 

  • Ceiling Fans
  • Clocks – electrical
  • Door Closers
  • Exhaust Fans
  • Freestanding bathroom accessories
  • Garbage bins
  • Garden Sheds – freestanding
  • Smoke alarms
  • Closed circuit television system
  • Garbage disposal units
  • Garden watering systems
  • Intercom system
  • Solar powered generating system assets
  • Spa bath pumps
  • Window shutters – automatic

 

As above list shows, ceiling fans, door closers, garbage bins, smoke alarms and freestanding garden sheds are some of the assets commonly missed by property investors.

 

More obscure and less frequently found items that are rarely claimed included closed circuit television systems (CCTV), intercom systems, garden watering systems and spa bath pumps.

 

While many of the items in the table have a low depreciable value, the depreciation deductions for these items can add up to thousands of dollars for an investor.

 

To ensure that depreciation is maximised, it is recommended that investors seek advice and obtain a tax depreciation schedule from a specialist Quantity Surveyor. This will include a detailed site inspection of the property to photograph and note every depreciable asset found in the property. The Quantity Surveyor will then use their expert knowledge of depreciation and utilise methods such as immediate write-offs and low-value pooling to maximise the deductions that can be claimed for the investment property owner.

 

All of the deductions a property investor is eligible to claim will be outlined in a comprehensive depreciation schedule in a format that they or their Accountant can easily follow and claim the depreciation benefits when they complete their annual income tax return.

 

For obligation free advice on the depreciation deductions available for any income producing property, property investors can call us on 0449 952 855 or send us your enquiry via our website – www.expert-tax.com.au

 

What happens if I don’t lodge a tax return?

 

For most taxpayers earning more than the tax-free threshold – currently $18,200 – it is mandatory to lodge a tax return. In some cases, a taxpayer may be required to lodge a tax return even if they earn less than tax free threshold, for example if tax payer had tax deducted from your pay (check with our office whether your circumstances require you to lodge).

If you don’t lodge a tax return, the ATO can either force you to lodge overdue tax returns or penalize you for not having lodged on time.

 

Non-lodgement advice

 

If you don’t need to lodge a tax return, you should submit a non-lodgement advice to the ATO instead of a proper tax return. This document informs ATO that you don’t need to lodge this year and ensures they don’t list you as having an overdue return which still needs to be lodged. If you don’t file a non-lodgement advice, the ATO will assume you need to lodge and may take compliance action to force you to lodge.

 

Penalties for not lodging

 

In the first instance, the ATO will impose a Failure to Lodge (FTL) penalty on you where your tax return is not lodged by the due date. FTL penalty is calculated at the rate of one penalty unit for each period of 28 days or part thereof that the document is overdue, up to a maximum of five penalty units. The value of a penalty unit is currently (since 31 July 2015) $180 so the maximum penalty which can be applied for an individual is $900.

The penalty is applied automatically but is not normally applied to returns that either have a nil result or generate a refund. Where a penalty is applied, the ATO will sometimes remit it where it is “fair and reasonable to do so”, for example in the event of natural disaster or serious illness.

 

Default assessment

 

Where a taxpayer continues to fail to lodge a return, particularly where the failure to lodge is for number of years, the ATO can issue the taxpayer with one or more default assessments.

This is basically an estimated assessment of the taxpayer’s income, based on data already held by the ATO about the taxpayer or taxpayers in similar situation. These assessments are estimated, and they are rarely correct and often show an inflated tax liability than what taxpayer believes.
Taxpayers can appeal against a default assessment but they must be able to substantiate what their actual tax liability was. Challenging ATO’s decision without evidence will not be accepted by ATO.

Although unusual, ATO can and does prosecute taxpayers for failing to lodge tax returns. The maximum penalty which can be applied on prosecution is a fine of $8,500 or imprisonment for up to 12 months.

 

Audit

 

It is also believed that taxpayers who lodge late are at increased risk of being reviewed or audited by the ATO.

 

 

For a no obligation chat contact us on 0449 952 855 or send us your query via our website – www.expert-tax.com.au

 

GST – In Simple Terms

 

Goods and services tax (GST) is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia.

Generally, businesses and other organizations registered for GST will:

• include GST in the price they charge for their goods and services
• claim credits for the GST included in the price of goods and services they buy for their business.

 

Do you need to be registered for GST?

 

If you run a business or other enterprise and have a GST turnover of $75,000 or more ($150,000 or more for non-profit organizations) or you provide taxi travel – you need to register for GST.
GST registration is voluntary if your annual turnover is less than $75,000 in case of a business or less than $150,000 in case of non-profit organization.
You can register ABN (Australian Business Number) and GST via the Australian Business Register (ABR) website – www.abr.gov.au or please contact us to assist you in registering your ABN.

 

How GST works?

 

Current GST rate is 10%. This means that if you sell an item for $110.00 inclusive of GST, it includes $10 GST that needs to be remitted to Australia Taxation Office (ATO).
Similarly, when you buy items that will be used in your business you will pay GST in those items. GST that you pay in items purchased for business use can be claimed as a credit on your GST return. On every GST return, it could be monthly, quarterly or yearly – depending on your registration you will declare GST collected (from Gross Sales) and GST paid (from Gross Purchases). The difference is the amount payable (If GST collected is more than GST paid) or refundable (If GST paid is more than GST collected). GST returns are lodged by completing a business activity statement commonly referred to as BAS Statements.

 

Issuing Tax Invoices

 

When you make a taxable sale of more than $82.50 (including GST), your GST registered customers need a tax invoice from you to be able to claim a credit for the GST in the purchase price. If a customer asks you for a tax invoice, you must provide one within 28 days of their request.
A valid tax invoice must include at least seven pieces of information –
• that the document is intended to be a tax invoice
• the seller’s identity
• the seller’s Australian business number (ABN)
• the date the invoice was issued
• a brief description of the items sold, including the quantity (if applicable) and the price
• the GST amount (if any) payable – this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, as a statement such as ‘Total price includes GST’
• the extent to which each sale on the invoice is a taxable sale (that is, the extent to which each sale includes GST). This applies if invoice is for more than 1 item. Each item needs to be mentioned separately on the invoice and invoice should also specify if the item is taxable supply or GST free.

 

Example – Invoice for a taxable supply

 

John (Carpenter) goes to local Bunnings store and buys a hammer for $110. The tax invoice will clearly specify the $10 GST included in the price i.e. 1/11th of the total invoice amount.
Example 2 – Invoice for mixed supplies

John buys following items from local Coles Supermarket –
o Milk
o Bread (without icing)
o Chocolate
o Ice cream

Milk and bread are considered to be GST free items and chocolate & ice cream are considered to be taxable supplies. Therefore, the tax invoice will have total amount of the invoice and the GST component will be less than 1/11th of the total invoice as there are some GST free items in the invoice.
GST and Deductions
If the item bought is for business purpose, you can only claim the net amount of the item i.e. Total amount less GST.
In example 1 above, John bought a hammer for $110 including GST and uses this item for his business. Assuming he is registered for GST, he can claim a deduction of $100 i.e. $110 less $10 (GST) on his tax return and $10 GST will offset his GST liability.
If John wasn’t registered for GST and he bought hammer for business use, then his deduction will be $110.

 

We are open 7 days and after hours, strictly by appointment. For further assistance on Tax and GST related matters, contact Expert Tax on 0449 952 855.

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