Building an Investment Property – Make Sure you get the Right Advice!

Deciding to build an investment property or to purchase off the plan is a choice many Australians are making. There are government incentives in most states in the form of reduced stamp duty and bonuses available for qualifying new homes.

The depreciation situation changes when dealing with a brand new property, compared to an older property. There are often benefits gained from obtaining advice from a property depreciation specialist during the early planning stage, especially when considering a brand new investment property.

Increase deductions when deciding on finishes
BMT Tax Depreciation will help you obtain long term value from the money you are outlaying. Construction is expensive, so it makes financial sense to obtain the maximum depreciation benefit where possible.

When a property is being built, thinking about the types of fittings and fixtures before installing them can generate extra dollars in depreciation deductions. BMT Tax Depreciation can advise you how to maximise the cash flow potential of a new investment property.

For example, which new floor covering should you install to increase your depreciation potential - carpet, floating timber floorboards or tiles? The depreciation available on these items differs due to their varying effective lives.

If you spend $2000 on floor coverings, for example:


Item Effective Life Depreciation 1st Year
Carpet 10 years $400
Floating Timber Floorboards 15 years $267
Tiles 40 years $50

Considering ornamental light fittings or down lights?
If you spend $2000 on lighting, for example:


Item Effective Life Depreciation 1st Year
Ornamental Light Fittings 5 years $800
Down Lights 40 years $50


Deciding between an air conditioning unit and ducted air conditioning?
If you spend $5000 on cooling, for example:

Item Effective Life Depreciation 1st Year
Air Conditioner-Split System 10 years $1000
Ducted Air Conditioning Unit 15 years $667

(Figures based on Diminishing Value method using current legislation)

As shown in the above examples, installing assets for their depreciation potential is certainly worthwhile.

STOP: Knock down and rebuild – write the old house off!
When building a new investment property and knocking down the old house, you must consider the concept of scrapping. Property investors can claim a deduction for the existing house. If you ‘scrap’ (or remove) items such as carpet, stoves, hot water services or air conditioning units from your old house, you may be able to claim their left over value as a 100% tax deduction in the year of removal. The same applies to the qualifying structural element of the property. Obtaining a Tax Depreciation Report pre-demolition can save you thousands at tax time.

WAIT: You know the construction cost? BMT can still help!
When depreciating a new property, establishing the total cost of construction is an important part of the process. However, it is critical that individual fixtures and fittings within the property that depreciate faster than the building are identified and the claim maximised. Most of the building is claimed at 2.5% per year for 40 years, however the qualifying fixtures and fittings (up to 25% of the total construction cost) can be written off much faster. It is our aim to depreciate the building at the highest rate. The greater the ratio of fixtures and fittings that depreciate over a shorter effective life, the higher the deductions will be in the first 5 years.

It is also important to note that when valuing fixtures and fittings for depreciation purposes, a specialist needs to consider and include associated costs like installation, consultant fees and preliminary costs.


source: http://www.bmtqs.com.au/Email/mav-30/InvestmentProperty.aspx?utm_source=Maverick-30&utm_medium=Email&utm_campaign=Maverick-30