When I first moved out of my parent's home, I was so excited. I had a lovely flat and a great job, but I quickly realised I knew nothing about the financial world. I'm not talking about stock investing or anything like that, but I am talking about finance basics. So, this is why I have created my blog. I want to teach others about budgeting, different types of bank accounts, savings and personal loans. Finance does not have to be boring, especially when you get something you want at the end of it. So, if you desire a brand new car or a trip overseas, these blog posts will help you manage your money, so you reach that goal sooner rather than later.
According to the Reserve Bank of Australia (RBA), the number of investors owning multiple properties has been growing exponentially over the last few years. RBA puts the growth at 7.5% per annum for persons with various properties. Due to high demand for space, investors that buy old property make renovations worth thousands of dollars. As an incentive to investors, the Australian Taxation Office (ATO) allows deduction claims on depreciable assets. However, few are aware of the effects property renovations have on property deductions once they decide to dispose of them. The tips provided below explain ways that investors can maximise their deduction claims.
Confirm Previous Owner Renovations -- With non-residential building activities expected to grow over the next three years, investors are buying old properties and converting them into office spaces. A good number of properties must have undergone renovations at some point since construction. However, since most sellers know little on how improvements affect property depreciation, such deductions are often left unclaimed. Therefore, if an investor buys such property, there is no law barring them from claiming any accrued deductions on depreciation. A quantity surveyor can calculate the cost of previous renovations which property investors can use when claiming for deduction on depreciation.
Renovate for Maximum Future Deductions -- As with most property investors, the objective is to buy old, improve, then sell. However, most owners tend to pay little attention to what they add to the property as part of the renovations, which should not be the case. Assets affect depreciation because the depreciable value is based on each asset's useful life. As a general rule, it is advisable for property investors to add assets that depreciate faster so that they secure maximum claim on depreciation deduction. For instance, if one is torn between choosing floorboards or tiles, the rate of depreciation of the two materials should help in decision making. Since wooden floors depreciate much faster than tiles, the amount of depreciation deduction to be claimed will be higher.
Use a Pre-renovation Depreciation Schedule -- In a process referred to as scraping, property owners can claim deductions on the remaining depreciable value of an asset for the year the renovations are done. The method provides a property owner with deductions that are more than what they would usually get when there are no renovations. The reason is that when a depreciable asset is removed during renovations, an investor is allowed to claim the remaining depreciable value of the old asset as well as the replacement for that particular year. An investor must, however, present a pre-renovation schedule before such deduction is approved. The plan will include all items before removal, and it is also proof that the building was generating income before the renovations.
Share15 February 2018
