28 May How the Budget changed the investment landscape – Brad Beer
Investing in a property with a friend, a partner or a colleague has a number of benefits for investors. This includes increasing your buying power and sharing the burden of expenses involved in holding the property including rates, property management fees, repairs and maintenance. Another factor to be aware of is how co-ownership impacts the depreciation deductions which can be claimed. Brad Beer explains why purchasing a property with another party will affect both owners’ claims. We also talk about the impact of the Federal Budget on investors depreciation claims.
Kevin: Investing in property with a friend, a partner, or a colleague is called co-ownership. Brings with it a lot of benefits. What about depreciation reports, though? To maybe enlighten us a bit more on this, Brad Beer from BMT Tax Depreciation joins us.
G’day, Brad. Thank you, and welcome to the show.
Brad: Hi, Kevin. Great to be here as always.
Kevin: Mate, what can you explain about purchasing a property with another partner and how it’s going to affect both owners’ claims?
Brad: Simplistically, what we want to do is do things correctly to start with. Secondly, if you actually do it correctly in the early years of owning the property, with co-ownership, you actually get a few more deductions sometimes.
The premise of why that is really about at the moment, if we do a depreciation schedule for a property, we put a cost and a value on items, and then we apply some tax rules to get deductions. A lot of items that are plant and equipment items that are worth a lower amount of money actually have some rules to make it simple and they get written off quicker.
But when two, three, or however many people actually own a property together, then what the legislation allows is that you actually split the value of the asset first and then you apply the tax rules.
If we do it properly, we end up with items that are worth a lesser value for your ownership, because you only own a percentage of the property, we apply some tax rules, and we actually get some better deductions in the early years of ownership, as opposed to taking what a normal report would be and just splitting the deduction by your percentage of ownership.
Kevin: Does it matter how many owners there are, Brad?
Brad: No, not at all. And it becomes different depending on the percentage of ownerships as well. If it’s two people, 50/50, fine. When there’s a 10% owner, then that 10% owner, most of their ownership in these items is actually quite small and gets written off quite quickly. So, one, two, or 15 owners, it all gets split based on your percentage of ownership.
Kevin: What if I buy a property now and then maybe bring someone else in at a later stage? How do I step through that process in terms of depreciation?
Brad: When you buy the property, you’ve applied some of those tax rules to what you’ve purchased at the start. Then you continue with what you do, and it doesn’t get reset at that point. The other owner comes in. They’d need to come in and split some of those things, but we can facilitate that when that is the case.
Kevin: There are obviously great benefits in doing this, defraying the costs, but you’ve given us an idea there on some additional taxation benefits.
Can I take you in another direction – a question without notice? The Budget came down this week. Brad, have you had a chance to look at its impact on property investors, particularly in relation to depreciation?
Brad: Yes, absolutely. It was a bit surprising. They’ve actually messed with some of the rules, which they don’t do very often.
I guess the important thing to start with: anyone who has bought something or exchanged a contract prior to the Budget night, there is no change. You do exactly what you were going to do in the past. If you already own a property you’re depreciating, you continue on, you do exactly what you’re doing. If you replace something in your property, you start claiming that new item as depreciation into the future.
What they are changing is for people who are going into the future. If you’re buying a property and the assets in there are already there and they’re secondhand, then you don’t get to claim depreciation on that plant and equipment. You do get to claim depreciation on the building allowance still, which is that Division 43 component against the structure of the building providing it’s built the right dates, but nothing in that second-hand arena for the plant and equipment.
What they’re saying is that if you don’t actually purchase the plant and equipment, then you don’t get to claim this deduction for it. If you replace things in that property, deductions will be available.
Now, I’ve been talking to government, trying to get some further clarification on the back end of this legislation because new properties, from what I understand, will be excluded from any of these changes because you are the first owner or you’re the first person to rent this property out.
There’s a bit of conjecture around some of that, but as soon as we get some more, Kevin, I’ll be sure we let you know.
Kevin: If you could, mate, that would be great. Of course, all this does is underscore the need to make sure you have a professional on side, and no one better than BMT Tax Depreciation. Contact our good friends, Brad Beer and his team. You can do that by using the link at Real Estate Talk, as well.
Brad, thanks very much for your time.
Brad: Always great to be here. Thanks, Kevin.