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How your clients can add value and increase deductions with an alfresco area

By Bradley Beer, Chief Executive Officer of BMT Tax Depreciation

Claiming depreciation on outdoor structures can help your investor clients save

Australia is made for outdoor living, so it is little wonder that alfresco areas have become sought after additions in many properties.

Creating an indoor-outdoor environment not only adds value to an existing property, but can also help to attract tenants and potentially increase the annual rental yield.

What many investors don’t realise is that by adding an alfresco area or an outdoor structure, they will also impact the depreciation deductions they can claim.

Any structures added to an investment property will entitle the owner to claim additional capital works deductions, also known as building write-off, at a rate of 2.5 per cent per year.

If the owner installs any new plant and equipment items, including removable or mechanical assets, this will also entitle the owner to claim depreciation deductions for these items*. The deductions an owner can claim for any new plant and equipment items will be based on the individual effective life of each item as set by the Australian Taxation Office.

Let’s take a look at a scenario in which an investor decided to add a seven metre by four metre outdoor alfresco to their existing four bedroom investment property.

Below is a summary of the costs of the new additions and the first full year depreciation deductions the owner could claim.

As the table shows, the owner of this property could claim $375 in capital works in the first full financial year deductions for structural items such as the concrete slab, walls, tiles, roof and lattice screening. The owner of the property would also be entitled to claim capital works for the remaining life of the property (forty years) for new structural items.

Plant and equipment assets installed including an outdoor ceiling fan, outdoor furniture and a freestanding BBQ resulted in a $3,831 deduction in the first full financial year for the property owner. This brought the total depreciation deduction of new items installed to $4,206. These deductions would be in addition to any remaining depreciation deductions the owner could claim from the pre-existing property.

It is important to note that if the property owner was to remove any existing structures or assets during the process of adding the alfresco area, they may also be entitled to additional deductions. If any remaining depreciation deductions exist for items or assets being removed during a renovation or addition, the property owner may be entitled to claim a deduction for the full amount of the remaining depreciation for items scrapped within the financial year of their removal.

*Under proposed changes to legislation, investors who exchange contracts on a second hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on plant and equipment assets. Investors who purchase a new property will be able to continue to claim these items as they were previously. We are currently speaking with government to further understand the intricacies relating to the proposed changes. To learn more simply visit www.bmtqs.com.au/budget-2017.

Property owners should always seek the advice of a specialist Quantity Surveyor when they plan to make any alterations to their rental property. If the owner has an existing depreciation schedule they will need to have it updated.

For obligation free advice on what deductions are available in an alfresco area, property owners can contact the expert team at BMT Tax Depreciation on 1300 728 72.

Article provided by BMT Tax Depreciation. Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.

 

 

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Bradley Beer