03 Jul The tax money people leave on the table – Brad Beer
As the end of the financial year is just days away here is a timely reminder about one document that is so easily missed that can add hundreds if not thousands of dollars to your return. Brad Beer with that story.
Kevin: As the end of the financial year fast approaches – only a matter of days away, in fact – it’s important for property investors to ensure they organize all of their paperwork to meet with their accountant to complete their annual income tax return.
Now one document that owners of an income-producing property will need that they sometimes are unaware of is a tax depreciation schedule. I’m speaking now to Brad Beer from BMT Tax Depreciation – he’s the Chief Executive Officer there – about depreciation deduction for investors.
What are they eligible for, Brad?
Brad: Depreciation claims are something that relate to the building getting older and wearing out, and the tax office says because of that decline in value and those things, it allows us to claim a tax deduction for this wear and tear. What they’re eligible for, at the end of the day, is some more tax back.
Investors are buying into properties in order to make money in the future – really, wealth – and they make that through growth and they also make that through the cash flow over time. Depreciation is one of those things that just adds a fair bit to the cash flow in order to help you hold that property on the way through.
Kevin: A lot of investors I’ve spoken to actually assume that their accountant is simply going to take care of that. Is that a problem?
Brad: These depreciation claims are related to a construction cost of the building and some of the values of items in the building, and often, people just think “All of my tax stuff is done by my accountant.”
We’re a quantity surveyor and the tax office accepts our cost estimates for the purpose of depreciation because quantity surveyors traditionally, actually, estimate construction costs of buildings. I can count the bricks off a set of plans for you and tell you how much it should cost to build it.
So, we actually work alongside the accountant and provide one of the numbers that goes into your tax return, which is a depreciation number. It’s actually built up of the cost of the building and the value of a bunch of items in the building that come down and work out an actual number, which is one of all the numbers that the accountant puts in their tax return to come up with a tax claim at the end of the year.
So, we actually provide something to the accountants. Most of the jobs that we do are actually referred by accounts because the accountant knows they actually shouldn’t do these cost estimates and they say “Get something from the quantity surveyor” and they’ll give us the numbers to help maximize your deductions, and therefore, your cash flow.
Kevin: That’s a question that every investor should ask their accountant: where is the tax depreciation schedule coming from? And maybe even suggest they get it from you.
Brad: Absolutely. It’s really easy. We have calculators online that are free to use. You can go in and put some details about your property, or talk to us about it, and we can give you an idea of how much you should be claiming.
Your accountant may be claiming something, maybe they didn’t bother, maybe they are doing it already, but it’s always good to ask your accountant whether you’re getting all your deductions, and depreciation is just one of those.
Kevin: Is this time of year, approaching the end of the financial year, a time when investors should be looking at what appreciation they can claim? Is this the right time?
Brad: Yes, and the reason I say that… The important time, really, is you need to make this deduction when you’re doing a tax return. But if you’re going to do a tax return in July or August and you’re going to buy a depreciation schedule for that, if you buy or order and pay for it before the 30th of June, that bill becomes deductible in that year instead of the following year.
The other thing is before you do another tax return, if you’ve already owned this property and you haven’t been claiming everything that you can claim, you can actually go back and amend two years of your tax return and get some of this money back from the past.
So, before you do another tax return, let’s see if you can get something out of the previous two years or however long that is. If you’ve owned it for five years, you still only get to go back two years. But let’s see if there’s something there and before you lose another year of the potential claims, sort it out before you get off to that accountant.
Talk to them first, of course. We work alongside them. But pre-30, June, that bill is deductible in this year instead of next year.
Kevin: This question probably could be “How long is a piece of string?” but on average, how much depreciation can an investor claim?
Brad: We actually have pretty good data on these sorts of things, so it’s not necessarily a piece of string. In the last financial year, because this one is not quite finished, the average deduction out of our reports in the first full financial year that they had a claim for was just under $10,000.
Now, that is a fairly substantial amount, and we did about 70,000 reports last year, so it’s not based on five reports – it’s based on a lot – and that’s the average number.
With the Budget changes that have happened this year, obviously, we haven’t got quite the full year of data, but we’ll have that soon. That will be slightly less in this financial year than it was in the previous one where those stats actually come from, but still quite substantial deductions available, absolutely.
Kevin: What about timing for taking advantage of tax depreciation? Is this too late, or should we be doing it much sooner than this?
Brad: It depends. If you bought a property in this financial year, then what you have to do is make sure you get it done pre-30, June, really just so that bill is claimable, and also just making sure that it’s ready for the accountant who makes those deductions.
But if you do want to go back and do those back claims for the past, then doing it before they do another tax return means they’ll be able to potentially adjust two previous tax returns and then make your claims for deductions in this year going forward and the future.
Kevin: Good stuff. Brad Beer from BMT Tax Depreciation. Brad, thanks again for your time.
Brad: Always a pleasure. Thanks, Kevin.