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Empower Wealth Blog post by Empower Wealth

Tax Planning Tips to Maximise your Returns (Part Two)

In our last Bonusisode, we featured Part One of Tax Planning Tips to Maximise your Returns and now we’re back to give you the rest of the gold!   

We’ll be homing in on claiming travel expenses – especially if you’re a rental owner – and how you can best position yourself to get the green light from the ATO! 

We’ll also be covering… 

  • How to claim travel expenses related to work (especially if you’re a property investor!)   
  • Is it possible to successfully act as your own accountant and claim travel expenses for properties? Hint: you need to prove this ONE thing to be eligible… 
  • The 2 ways to keep a travel record and which one you should use (Plus Ben gives a life hack that makes recording 100% easier!)    
  • How to determine if you’re eligible for Building Depreciation 
  • When should you get a Tax Depreciation Schedule?!   
  • What’s included when claiming plant and equipment depreciation!?  

Julia also shares an extremely handy tax tip (Just see how excited it makes Ben!)  for those who’ve missed out on creating a property depreciation schedule…  

Spoiler: You may be able to go back and AMEND past tax returns to gain access to these benefits!  

So before you get start lodging any tax returns for 2022, listen to this first!

And if you’re interested in our free and no-obligation initial consultation, you can learn more about it here or simply fill in the form below and one of our qualified tax accountants will get in touch with you soon.

  • VIC | NSW | QLD | SA | ACT | NT | TAS | WA | International

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Transcript

(Please note that this is an automated transcription and as such there might be typos/inaccuracies in the transcript below.)

Ben Kingsley:

G’day, Ben Kingsley here to just update The Property Couch community. Last week we introduced one of the Talking Property Tax with Julia Hartman, Episode Two, Part One. Today I’m pleased to give you access to Part Two of that series, the idea behind it is we wanted to make sure that you did all your tax planning before 30 June. So I really do hope you enjoy Part Two of Episode Two in Tax Planning: Tips to Maximise your Tax Return before 30 June. So check it out. My chat with Julia Hartman, and finally, if you want more information on our tax services and more free, downloadables make sure you go to thepropertycouch.Com.Au/Tax – I’m Ben Kingsley and we are talking property tax again with Julia Hartman. This is Episode Two, Part Two.

So quick backstory, Episode One and Episode Two is all about getting yourself organised in the lead up to the end of the financial year. So we’re coming up to that time. So we’ve been looking at different parts of trying to get yourself organised. So in Episode Two, Part One, we talked about tax and super contributions. What can you do there? We talked about best practise when it comes to managing your bookkeeping and all your receipts and those types of things. And we’ve got more to share around that today. And finally, in episode two, part one, we talked about tax considerations for property investing. What can you do before 30 June? Well, in part two of today’s episode, I’m here again with Julia and we’re gonna be talking and taking a deeper dive into car travel and how we can claim car travel. We’re also gonna have a look at expenses and travel expenses when it comes to investment properties and some of the rule changes there that people still aren’t aware of.

And then finally, we’re gonna take a deeper dive into tax depreciation and why it’s important to potentially get that depreciation done before 30 June as well. So it is a huge show. And so welcome again, Julia, thanks for joining us. Now for those people who don’t know who Julia Hartman is, she really is a guru when it comes to property taxation, she is the founder of the BAN TACS Property Group. And that is a group of accountants around Australia, which Empower Wealth is one of them. And she’s also our Chief Technical Tax Advisor here at Empower Wealth. Well, so we’re absolutely thrilled to have you again here, Julie for today’s show. So let’s, let’s jump into it. I wanted to start with really focusing in on travel and what we can claim because at the end of the day, there’s a lot more movement of people and travel going on. We live in a hybrid work environment, so people are gonna be questioning us around the types of things that we can claim and we can’t claim. So I wanna start off with some real fundamentals and that is, you know, what are the two ways in which you can record your travel to make a claim at the end of the financial year?

Julia Hartman:

Well, it’s either by a detailed reasonable estimate, which is about recording for say a month. What’s typical deductible travel, which will explain in a little while, and then you might multiply it by 12, or you might multiply it by 11. If you’ve had a month off, you might have done a big trip somewhere that’s out of irregular. You might add that in. It all requires a detailed, reasonable estimate. So you can’t just pull 5,000 kilometres out of the air <laugh>, but that’s all you get under this method. It’s up to 5,000 kilometres, but you get it per car per owner of the car. So spouses can do a declaration of joint ownership and switch cars to get 10,000 kilometres. Now, the other method is the logbook method, which means you’ve gotta keep all your receipts. You’ve got to do it for three months, but it lasts for five years.

Unlike the detailed reasonable estimate, where you have to do one each year and you have to record the date and each journey. And if the journey goes over two days of entry for each day, you don’t have to report all your private journeys, but the basic problem, there is the receipts, though, you can calculate the fuel, you can do a fuel test and then calculate by doing your speed already. And each 30th of June, don’t forget to take your Speedo reading anyway, and that will allow you to claim a percentage of the actual cost based on the apportionment and the logbook. Now that the detailed reasonable estimate is at 72 cents a kilometre, which is quite generous. So unless you’ve got a really expensive car that you’re paying off, so you’ve got interest payments that you might get a better return claiming 5,000 Ks under the reasonable estimates method than claiming 7,000 Ks under the logbook method, when that’s only 50% of the use of it or something like that.

Ben Kingsley:

So a couple of interesting tips there, I mean, in terms of most people would think to default with the logbook method, which allows you, I mean, if you’re very active on the road and so forth, and you know, it requires you to be able to travel a lot around most would argue that the logbook method does eventually give you a greater return because it’s got no limits in regards to kilometres travelled where obviously the detailed, reasonable estimate, as, as you say, a maximum limit of 5,000. So is there any type of industries that are no-brainers for people to be thinking about the sort of logbook method, as opposed to the detailed, reasonable estimate?

Julia Hartman:

Yeah, it does depend a lot on your car costs, but yeah, if you are a real estate agent running around all the time, you’d probably see it that way. And we get a lot of miners carrying their bulky tools all the way out to the mines. So they get the kilometres up and tradies would be the same with their bulky tools.

Ben Kingsley:

Now there is one sort of common mistake that some people make, and that is around this idea that if they are getting a salary sacrifice they also think that they can claim their travel costs in the car. Can you just sort of set the record straight there, Julia?

Julia Hartman:

Yeah, you’ve gotta own the car or hold the car before you can claim it as a tax deduction. So holding can include leasing the car, but not through these arrangements because the person leasing the car is your employer. They own the car, so you can’t claim it. So when you do a salary sacrifice arrangement, the idea is that you give that car to a member of your family to drive that can’t claim their car and you use a car in the household.

Ben Kingsley:

Nice little tip on the side there. What about if I borrow money to purchase the car? So let’s say I take out a car loan and the majority of the use of that car is for business purposes. Am I able to also claim the interest on the repayments on the car?

Julia Hartman:

Yes. You can claim the interest portion as a, as to how the logbook proportions it, of course.

Ben Kingsley:

Yes. So that’s a, another simple tip. A lot of people don’t realise that now here, here comes the complexities of the rules in terms of what does the ATO think about when they’re sort of saying travel related to work expenses that are deductible. So if we can just unpack the tests that the ATO puts out there, that’s gonna help people better understand in terms of what’s claimable and what’s not. So in other words, a classic person who works in an office who drives to work and drives home is, is not claimable, but let’s start to think about the rules and the definitions that they use for what is claimable.

Julia Hartman:

Yeah. Okay. And I might point out this stage that it’s a big-ticket item to the ATO. So if you do get ordered, they’ll poke and poke at you. And the idea is to get a letter from your employer to say, yeah, this is what I do. I do use my own car for these purposes and get it now, rather than when you’re getting ordered, cuz you might be working there anymore at anyone <laugh>. So you’re going to get your home to work, travel if you’ve got bulky equipment, because as long as there’s nowhere safe at work to store it. So that’s where your trades get it. They’ve gotta take their tools home as safe at work. Doesn’t count as a container where everyone’s got a key it’s about your own personal locker key. It means your own personal locker. So they’re doing it to stop this tools being stolen. So they get the home to work travel because they’re carrying the tools to use the words of one of the cases in this regard, they’re hitch hiking with their tools. It’s not their home to work travel, but the tools need the home to work travel. And this bulky equipment can extend to things that are just awkward, that you couldn’t carry on public transport, such as a ladder or a drum kit, if you’re a musician, that sort of

Ben Kingsley:

Stuff. So it’s sort of it’s I suppose it’s a, it’s a common knowledge test in terms of a, you know, a common sense approach to what does allow for that. So you did mention earlier about the real estate agents now, technically they are moving around constantly. They may not necessarily have bulky goods. So how does the ATO class them as their travel being tax deductible?

Julia Hartman:

Right. Well, when I’m talking about the bulky side that’s to get you home to work travel, so your real estate agent would have a problem because if they go from home to the office, then they, they that’s just a normal home to work travel. Yes, you’re right. No bulky equipment. But if they go to a site and put up a four sale sign on the way to the office, they’re going to get their trip. And I have real estate agents that tell me that they carry 20 kilos worth of signs in their boot, ready to do that sort of stuff and a hammer and things and a shovel. And you know, they cuz 20

Ben Kingsley:

Kilos. Yeah, well that would make sense. They do have a lot of those A-frames and flags and everything else that they need to move around to. And so if they’re going straight to an open site or as you say, they’re dropping off A-frames and that type of that sort of makes sense. In terms of that, now tell me a little bit more about the concept of what we refer to as an abnormal workplace,

Julia Hartman:

Right? So that would be, first of all, you gotta have a normal workplace and your boss will send you somewhere else for the day. Well, then you get your home to work, travel in that regard. And this again, with the real estate, the abnormal workplace would be going out to a particular house and putting out the full sale side. Yep. So even though you driving from home because it’s like your normal workplace, you’re going to an abnormal workplace, you get that home to work leg, you then get the leg from there to your normal workplace or home again after that. But that’s all because it’s abnormal now, the class is abnormal. You can’t be going there regularly. You can’t have three days at one office in two days at the other. It’s got to be that real. Oh, someones sick off you go to that office. So of course, if you’ve got a lot of normal workplaces in one day, you’re considered itenerate. So the classic case in this was a teacher who had to go and do his class at about four different schools a day. And she also had bulky equipment cuz she needed all her gear to do that. You normally find someone that’s travelling from one workplace to another, during the day’s got something to carry, but she got it cuz she was itinerant because just more than one workplace before she returned home is the key thing.

Ben Kingsley:

Yeah, it says here, you know, a minimum of two workplaces in one day will clash. You were an itinerant unless one was your normal workplace. So if you are moving around, you’ve got this. And I think it’s called itinerancy if I’m talking about that. So again, talk to your accountant about that. If that is you, where you are being moved around different sites on a regular basis. So even though you might have one base site if you are being moved around those there could be some tax deductibility there as well. Now I want to that’s right. You go Julia.

Julia Hartman:

That’s right. In those situations, you even get the trip from home. So another example of this would be the age care workers that go from one house to another. They only get paid when they reach the first house, but you do actually get the trip from home. Cause they’re itinerate, they’ve got more than one work during the day.

Ben Kingsley:

Beautiful. Now travelling after you have started work, so let’s say you’ve started work and then you are moving around that, that sort of makes sense that you know, that if, you know, as an agent, as an example, let’s choose a real estate agent, they go to the office, they organise their day and then they’re out on the road moving around. That would be classed as work-related travel. Correct?

Julia Hartman:

Yeah. They’re travelling for work. It’s definitely part of their job. There’s no private portion of it. And this would include a lot of people, office workers don’t realise that when they go to the bank, when they go and pick up some groceries and things like that and G those kilometres add up over a year.

Ben Kingsley:

So you’re talking about supplies when you say groceries and that for the office or for, for working, yes. Not for going to get your grocery phone. So that gives you some idea. Now there was some other sort of technical stuff that we have in our notes here that we wanted to talk about and that is around transporting others. So there’s a couple of examples in here where we’ve got transporting students or patients. So can you talk to us a little bit more about that story?

Julia Hartman:

Yes. Well, again, that’s part of your, part of your job is to pick these people up, but then you’ve started work. That’s another one with the H cares too. Coaches picking up players.

Ben Kingsley:

So, so the, or, you know, so let’s say you’ve got a, a, a teacher who picks up students or players of the football team on the Saturday and he’s taking them out and about and around that’s tax deductible as part of that. But I did, it was interesting in the, in the notes that we’ve we’ve got in front of us where we talked about students. And we don’t want to confuse that with our parents taking their kids to school on their way to their own workplace. I’m assuming that’s not deductible Julia.

Julia Hartman:

No. Then <laugh> not the idea. It’s gotta be part of your job related to your work.

Ben Kingsley:

So in summary, it’s, it’s really simple. If you are moving around and you have to carry a lot of equipment as part of the work that you are doing and you’re itinerant in respect of moving, you know, from place to place and it’s irregular travel chances are, you should be looking at that as a claim, as part of your ongoing work. And again, if there’s any loan that you’ve got with that car, it’s proportionate to the use of the car. And so there obviously are different types of methods. The two methods we’ve got there that we’ve just discussed. Now I do wanna summarise by saying that if you are looking at the logbook method technology is getting better and better. And there are potentially some logbook apps. So some technology apps that you can download on your phone.

Now, I’m not saying I’m not advocating for any of these, but I just wanna let people know that they do measure how you move around. And ultimately they do all of the sort of paperwork for them. So there are a, a few out there that are compliant with the ATO. I’ll just mention a couple of names “Go Far” is one of them “Vehicle Logger Driver’s Notes” app, “ATO Logbook” is also another one. And then the “Drive A Direct Logbook”. So if you want to check any of those out you can Google those and they may make your life a little bit easier. But again, with the logbook method if you’re staying in the same employment that logbook only needs to get done once every five years and it needs to be over a three month period. So is there any other final tip on that, Julia, when should I get started? Is it too late for me now? If there’s only sort of six weeks to go before the end of this financial year?

Julia Hartman:

No, it’s you can start it now. As long as it’s started in the year, you can use it in the year, but you’ve still gotta come back and do that evaluation. Well, hang on a minute. I did it when I worked for three months straight and I take a month off a year. So you’ve got, you’ve still gotta adjust the final figure you come out with and the big, hot spot with the ATO on this one is what you put in the description as to why you made the journey. They, they pick on, they like you to put where you’re going and why you think it’s deductible, whether it be bulky or a meeting or something like that is the purpose of the journey.

Ben Kingsley:

Well, well, I, I remember, you know, being a, a mortgage broker and doing house calls you know, some 12, 15 odd years ago where I was, yeah, literally I would move around from site to site each afternoon or evening, going to see people in their homes to find them the best mortgages. So that’s another classic case. I, I know of when I was doing my logbooks at that time obviously the world’s changed a lot since then. Less and less house calls for most brokers as people are able to get the job done remotely via teams or zoom or those types of things. So there you go. That’s the first segment there, there’s a lot to look at from a travel point of view and certainly, you know, the definitions that you wanna be focusing in on in terms of travel to and from home versus that moving around that you’re doing as well. So some good advice there from Julia around that. Now I wanted to pivot and start to talk about the other misconception out there many, many years ago, you were able to travel to inspect your interstate investment property or intrastate property. And you’re able to claim all those deductions, but something really important happened in July of 2017. Julia, can you just explain what the government did when it comes to claiming a tax deduction on travel, to inspect investment property?

Julia Hartman:

Well, they very discriminatory removed it from mom and dad investors and still left it there for the big end of town. So you can’t claim any travel-related, whether it be for repairs or inspection or any excuse. I’ve heard a few of them, it’s just none of dads can’t claim it that’s neither the car kilometres or the accommodation, but if you have over nine rental properties, you’re in with a chance of being able to claim the travel.

Ben Kingsley:

So let’s talk about some of those examples, Julia, that you have seen over the years in terms of the rulings that you’ve seen there. And, and let’s sort of unpack those a little bit around what they did describe and why some people have been successful. Why and why others haven’t been successful.

Julia Hartman:

The key term is to be able to argue that you are in business, in the business of having rental properties. So you’ve gotta be pretty proactive about it, but there’s a case here that I reckon’s worth quoting. It’s YPFD it’s a 2014 case at the time she had nine properties and she already had a full-time job as well, but she said that she argued that the property managers were useless. She had to run around and do everything, follow everything up. She spent hours every day doing these things. So she was so business-like she was running it as a business, even though they were long term rentals, they weren’t short term rentals. So she got that over the line. Now there are few private rulings where two or three long term rentals, not a go. Yep. But if you’re doing short term rentals, if you’re doing the Airbnb B and remembering you’re going back and cleaning and restocking and running around and bringing them in, and that then you’ve got, yes, it’s more business-like go one, Airbnb probably won’t put you over the line either.

Ben Kingsley:

So there was another positive case also that talked about the CA the taxpayer letting out six-holiday flats in a single building that were all short-term rentals, as you just mentioned there basically seven days a week job. The taxpayer was actively involved in maintaining the flats, showing visitors around managing bookings and cleaning with some help. But it also appears to be relevant in terms of being in the business of, and also provided some furniture, linen and Cutler as part of that. So that one was a positive result because they were in the business of, of looking after those properties. But on the other hand, there was also another private ruling that got knocked back for someone who had three or less properties used in short term rental but wasn’t able to demonstrate that they were in the business of providing that services, even though they’re involved in the management and cleaning of those properties. So what’s, what’s the advice here. If you do feel like you are in the business and you’ve got a case, is it, is it worth proactively trying to go to the ATO for a private ruling on this, Julie?

Julia Hartman:

Oh, we’re very pro-private rulings because she’d be amazed how positive they come back. For some reason, my advice is a lot of accountants out there that’ll shoot me, but anyway, it’s do it yourself. Get an accountant to review it. Yeah. So you haven’t shot yourself in the foot, but do it yourself. So it appears to be, you’re just asking. I think they think when an account or a solicitor completes the ruling request, that the floodgate might open. Ah, so I, I feel that the odds are better if you just make it look like mom and dad asking, but your key things are how actively involved you are in it, how much you are involved in looking after the person that’s renting it, like the linen and how many properties you own, it’s sort of like you’re

Ben Kingsley:

Going for, and it sort of makes sense that if it’s a genuine inquiry around query around CLA clarifying it and it’s coming from the individual tax order, I agree with you that yes. You know getting a tax ruling and then sort of making that public does worry the ATO in terms of, as you say, opening the floodgate. So I think that’s a, a nice little tip. So in summary, Julie, we’ve got sort of three points here, cuz I wanna pick up on the last point, but let’s go through them. So commercial properties are you are able to claim your travel for inspecting those, your accommodation and so forth, proportionate to the time that you spent on that trip, looking at that property. So back in the classic case of I’ve got a commercial property I live in Melbourne, I fly to Brisbane. I spend five days there and I go to the property twice. What’s, what’s the sort of gut ruling around, I mean, you know, without sort of going into too much detail, what’s the gut feeling there is it, is it two-fifths of all of that cost that I would be able to claim or you know, or took me a day to drive out to the property. And then I then overnighted two days there and had to drive back and overnight at the airport to come home. It it’s, it’s gonna be case by cases, isn’t it? But what’s a, what’s a nice rule of thumb to work by.

Julia Hartman:

Well, you’re looking at the primary purpose of the journey. So if you are away for five days and you’ve spent two days at the property and two days driving there, then you’ve only got one day that you took a bit of rest. So the primary purpose. So you’re gonna get all the two and from travel and probably your five days worth of accommodation too. But if you’ve gone up there and you’ve seen the property for two days, you’ve spent two days on holidays then you’re going to have to AOR it past.

Ben Kingsley:

Yeah. Okay. And so don’t get gritty, people do the right thing. Keep a diary. Keep a diary, always good as per you know, that was a great tip on Part One of Episode Two in terms of keeping an eye and, and, and those notes are always important. The other one that we saw there is if you’re in the business of operating property and you can demonstrate that, and usually it’s gonna require a multiple properties block of flats or a significant number. And the two examples that we used, there were nine rental properties. And, and also the other one had a block of flats with six-holiday flats. So that was the holiday leading that was going on there, that they were able to be successful. And then the final one is people who own properties in a company named Julia. So this is obviously classic big end of town stuff, but there are people out there who may have had some advice rightly or wrongly about buying property in a company name. And they potentially are also able to claim some of their travel costs.

Julia Hartman:

Yes, as long as it’s in a corporate entity, but the reason we don’t want them buying it in a corporate entity, please people don’t rush out and do it just to claim your travel. Cause you’re not gonna get your 50% capital gains tax discount.

Ben Kingsley:

Now that is an awesome segue into what we will do in episode three. So, we will have another episode in the middle of this year where we are gonna focus in on structures. So the right type of entity or personal name in which to buy your investment property because there is a lot of people out there SPS out there who are telling you to have some fancy structures which are all about tax benefits, or maybe even the benefits back to the tax agents themselves who are encouraging that type of structure. So we’re gonna take a deep dive into the next episode on that particular thing, but that really does wrap up our section when it comes to just reminding people, if you’re a mom and dad investor. And unfortunately, even if you have properties in regional areas in the same state in which you live in, unfortunately it’s ridiculous, that you aren’t able to claim a tax deduction on your travel in terms of inspecting those properties.

Ben Kingsley:

And it’s, it’s quite extraordinary considering some of these things are worth, you know, upwards of a million dollars and beyond. So we do think that the government should look at that and maybe they put a cap in play as opposed to a complete ban of those deductions. And if I was wearing my picker hat here as the chair of the property invested Council of Australia, we are saying that there should be a thousand dollars cap for interstate property and potentially a $250 cap annually for inspecting you know, regional properties in the same state, because it’s ridiculous that we aren’t able to get the same benefits of the big end of town. So there’s me having my little wing session. And it’s not a bad little time to segue into the final piece of what we wanna do in terms of tax planning for the end of the financial year, and that is looking at depreciation.

Ben Kingsley:

So it’s really important for people to understand that they, if they own an investment property that those properties may be able to be depreciated which allows to improve your cash flows. So please make no mistake in thinking that you get this tax deduction, it will come off the capital cost of the property if you ever sell it, but it absolutely helps you in terms of managing cash flows and cash flow is king. If interest rates are gonna keep going up. So we wanna spend a minute in to, in, in terms of talking about depreciation. So why, when and how, so we wanna start with what properties qualify for building depreciation. Julia, can you start us off with that ruling,

Julia Hartman:

Right? Well, certainly if you haven’t, if the property has not been built after or renovated after the 16th of September, 1987, then you’ve got no building depreciation, you can claim. And we already know that again, about the time they put the damper on travel, they also stopped the plant equipment depreciation for established properties. So the big question then is how do you find out when it was built? I think sometimes the water metre will tell you when the water’s connected sometime council still have records of when it’s built. Have you got any ideas in that regard, Ben, any experience?

Ben Kingsley:

Well, I, I think look and a lot of the property data companies even call logic and a few others are getting better at those historical records. They’re continually updating all of those sort of planning and building approval records. So I, I think if you, you know, were able to even talk to a local estate agent in the area, they may be able to look into their database to see when the record of that property was built, if you are struggling to know when that when that building occurred. The other thing that you can also do from a renovation point of view is usually renovations of a significant nature need to get planning and permits. So going to the planning department of your local council they will, as part of that planning process in most local councils, you would need to put an estimate of the cost of the renovation.

Ben Kingsley:

So that’s also another way in which you can potentially collect information. If you are looking at a significantly renovated older property. So don’t, you know, that that’s the bit that most people potentially don’t look at from a building depreciation point of view, if there’s been a large extension, a second story put on that property since September of 1987 they should also be a consideration, Julia, that’s probably where I’ll be going with that. So, but moving, moving further into that and, and, and leaning a bit more into that conversation, how, how do I sort of do a quick calculation in terms of whether it’s worthwhile me getting a depreciation schedule done on the property? If I feel like there’s not much left in terms of the depreciation now that they’ve taken away the plant and equipment opportunity to depreciate that on existing properties.

Julia Hartman:

Yeah. Well, when you think about going back to 1987, it might have only cost 60,000 to build the house, but it wouldn’t have cost less. So if you do the sums on that, you get to claim two and a half per cent of the original building costs, so that’s going to give you a $1,500 tax deduction, which is gonna get you about $500 refund depending on your tax bracket. So that sort of pays for the depreciation report in the first year. And remembering that depreciation report is tax-deductible to so most whole houses because you can only go built after 1987, most, whole houses it’s worth doing, but when it’s just an extension, it might be too low. For example, if you just spent, they just spent 20,000 on doing a kitchen and a bathroom, then that’s only going to get you a tax refund of one or $200 a year. So it takes you a while to crawl back the depreciation schedule.

Ben Kingsley:

And that’s why if you are looking to use a quantity surveyor it’s always best to understand we know some of the better quantity surveyors out there have opportunities to give you an indicative assessment before you pay any money. And in some cases, there are quantity surveyors out there that allow you to say that if the depreciation schedule that they’re there offering doesn’t give you the full refund of the cost of the schedule inside that first year, then they’ll do it for free. So use those, you know, there are good calculators on some of those sites. The biggest one obviously is BMT. So let look, look at those calculators make some assessments around whether you think it’s worth it and pick up the phone and talk to a quantity surveyor who specialises in this area. And they’ll give you an indicative in terms of whether it’s worthwhile in terms of the building depreciation, that’s still left in there. So, Julia, there’s obviously another thing that’s also talked about when it comes to depreciation on the actual building, and that is the scrapping process. So tell us a little about what scrapping is and when it would apply and when you think it wouldn’t apply.

Julia Hartman:

Okay, well, scrapping is writing off when you demolish something, you’re writing off all the unclaimed depreciation, but there are lots of rules around it. It’s not just a giveaway. So maybe best explained by an example, let’s keep it simple that you’ve got, cuz you get to write depreciation off over 40 years. So let’s say the building cost is 40,000 just to keep it simple. Now, if you’ve owned the house for the last 10 years, and it’s now 30 years old, so you are thinking I’ve still got $10,000 left that isn’t depreciated because we got 10 thousand dollars every year. Can I claim that if I bulldozed the building, now you can’t, ’cause you’ve gotta know how the last 20 years it had been used and you’ve gotta assume unless you can somehow find out that it has been used as a private home in that time. So you look at that 10,000, you’ve got left that you’re about to write off and you say, well, for the last 30 years, two-thirds of the time it’s been used as a private home, one-third of the time as a rental. So I can claim one-third of that remaining 10,000 as a deduction.

Ben Kingsley:

So it’s all gonna come down in terms of looking at the numbers and the cost of getting the report to see whether it’s viable or not. And again, that’s where I say go to the professionals to be able to work out whether you think it’s viable or not in terms of talking to a quantity surveyor.

Julia Hartman:

Yeah, but I, if you, you should, if it’s already your property for 10 years, you’ve probably already got a report. So if you’re pulling it down, you just use what’s on your report. It’s only if you say, well, I’m only gonna knock down the extension at the back that you may need some apportionment, but then it’s an even smaller amount that you’re going to be able to claim and it becomes probably not worth it. So scrapping is not a big win for a

Ben Kingsley:

Very rare, no, that well that’s right. And not too many people bowling over homes to build new accommodation. When the accommodation there might still have another 50 or 60 years to run it, even though it’s only 40 years old. So it’s not a big piece, but it, it, it is also a really good reminder about when you do have the depreciation report. That is the report. That’s evergreen. That’s gonna look after that property for the period of time. And that’s also potentially a good segue into the plant and equipment depreciation. So we did see some significant changes at the same time. You know, that we saw the changes to travel costs introduced by the liberal government at the time, a very disappointing <laugh> result there in terms of plant equipment depreciation. So let’s talk about what is plant and equipment. And then let’s talk about how it’s depreciated and then how we can then sort of look at where there might be opportunities for deductions.

Julia Hartman:

That’s a very important point, what’s plant and equipment because that can’t be included in building depreciation. So even if you know all your building costs and you don’t have to have a quantity surveyor if you know all your building costs, but you have to pull out the cost of the stove, and the cost of the carpet and depreciate that separately. So you’re looking at carpet stoves, air conditioners blinds, curtains, and things that can be removed from the building without ruining it. So you can’t, you, your, your kitchen bench and cupboards are not planting equipment, but the stove that slides in between the cupboards is planting equipment. And that rules there is you can’t claim it unless you are the one that paid for it and it gets very tricky. So if you are buying a brand new house off a builder, you are the one that bought it brand new.

Julia Hartman:

You are entitled to depreciate the, the stoves and the like, but if you’ve done a Reno and the builder went and brought the stove and installed it, you’re buying it second hand when you pay the builder, apparently there’s a difference. I don’t know what it is, but that’s what the law says. <Laugh> if you, so you’ve gotta actually pay for it yourself, unless it’s a brand new build. And even if you pay for it yourself and you are living in the place while you do that, and you never use it, it’s an air conditioner. It’s the middle of winter. You still it’s second hand by the time you start renting the property out. So you still don’t get the claims. So it’s very unusual for you to need a depreciation schedule for your plant equipment, because you already had the receipt, you know, how much it cost you and your accountant can easily put that into their software and do the depreciation calculation.

Ben Kingsley:

So what we are, what we’re basically D talking about there is if you are running an investment property and you haven’t lived in it and you are replacing the hot water system, obviously keep that receipt and pass that on to the tax accountant, because they do have software that will apportion the right down of that asset over time as per the rules set out by the ATO. So I think that is an important message there, but certainly a, a tip for, for young novice players around how you would then talk to your builder in terms of saying, look, we’re moving out of this property. And then at the finish of this property, it’s turned into an investment property. So we want a contract that says, I buy and supply all of the plant and equipment and you instal that. But the first use of that plant and equipment must be the tenant in that property as opposed to the owner.

So, as you’re saying, if you’re living in the home and a year later, you then, unfortunately, well, or fortunately turn it into an investment property, all of the plant and equipment you’ve added into that property over the last 10 or so years isn’t being able to be deducted via a depreciation schedule. So that, that is again, a disappointment considering that the usable life of that asset should have consideration. And, and, and that’s where I think the governments have got it wrong. Again, if I’m wearing my pick at so that’s, that’s important. So I think that’s a perfect segue into when you should bother to do a depreciation schedule or not. So, in your opinion, what are the, what are the reasons why you should be doing them and what are the considerations that you would be making in terms of getting a depreciation schedule?

Julia Hartman:

Yeah, I think it boils down to a brand new home. If the builder can’t give you the breakdown, then it’s certainly worth getting a depreciation schedule with an established home. Yes. as long as it’s after 1987, but when it comes to renovations, that’s when you question. Yep.

Whether it’s worth getting it, you need to get more detail about what you think those renovations would be worth. And it’s all a matter of saying, well, I’m going to get two and a half per cent of that amount every year. And then I’ve gotta multiply that by my tax rate to see how much real cash I get in my hand to cover the cost of the depreciation schedule, which is also tax-deductible. So you’ve got that, but there are probably people here that have realised that they should have got a depreciation schedule. And then it’s, it’s definitely worth getting it. If you meet the criteria we’ve just discussed, the idea is you can go back and amend your tax return and claim previous depreciation. And there’s a trick I want to get out there. This is

Ben Kingsley:

<Laugh>. Yeah, no, I, this, this is a great tip. It’s not a trick, it’s a legitimate tip. And it’s really important. So before you announce that, cuz I want a phone call to a rep reputable depreciation schedule company, a quantity surveyor company is, is worth it. Like what’s, what’s 10 minutes, 20 minutes of your time to tell them this is the property address. They have rich data and they will be able to give you an indicative understanding of whether it’s deductible or not. Right. And, and if they can, again, cover the costs of that in the first year, and, as Julia just said, it’s tax-deductible as well. Why not do that? Because if there is some, some add-backs, which is what we would refer to them in which will give us potentially better cash flows and a bigger tax return, it’s gotta be worth a phone call.

Ben Kingsley:

And you know, they won’t do it if they don’t believe it’s viable for you. And in some cases, as I said, BMT they’ll do it for free if they can’t get that tax re you know, that amount of the, of the tax shed, sorry, the depreciation schedule the cost of that in the first year. So that’s gotta be worth the phone call just to have a look at that. And I will also plugin here that if you do mention the property couch or empower wealth you will get discounts with BMT. So I just wanted to flag that in there because we’ve been working with them for a very long time and we know that they do great work. So that is just one message in there for those people who are looking to get tax returns because TA a depreciation schedule, cuz here’s the, here’s the big thing, even, I didn’t know this tip Julia. I was always of the view originally. I’ll let you say it, then we’ll talk more about it. So what is, what is the big message? What is the big message here?

Julia Hartman:

You’re so excited. I feel like I should let you say it then. <Laugh> okay. So you’ve listened to our show and you’ve said, oh, oh two years ago when I brought that established home, I thought when the plant and equipment or whatever, I got confused, I should have sure it’s built after 1987, I should have got a depreciation schedule. What can I do with it now? Fine. You can go back and amend two years’ worth of tax returns. You can go back two years from the date of assessment, very easy for the account that did the tax return to do it for you, their stuff, we should just let them add something and lodge it again. But beyond two years, the tax office will automatically say, no, you’ve got right. No right of amendment. And that’s when you’ve gotta try and argue that I don’t get the two years cuz that’s supposedly a concession to taxpayers that we can’t go back and audit you and amend past two years.

Yeah. I don’t qualify for that. And the reason you might not qualify for the two-year concession is if you a beneficiary of a trust or you jointly own a property with someone else. In other words, there’s this partnership that owns the property. It doesn’t have to be the property you’re going back claiming for any property. And then you’re allowed up to four years to go back. But I can assure you when you lodge the re amendment, they’ll send it back and say, no, no, no, you’re only allowed two years. You have to go and argue for it. And I have given a link in our fact sheet to the cases and that that’ll help them argue so up to four years.

Ben Kingsley:

Wow. And that is, that is if you own the property with another person or another entity. So I wanna be really clear on this, cuz again, this is not something that that we’ve argued in the past. Originally it was three years. And the reason why we wanted to talk depreciation now is because, you know, we’re only five to six weeks away from 30 June. As when we’re recording this. And so you get to go back those two years and then ultimately on the 1st of July, you lose that opportunity to go back that extra year. So if you haven’t already thought about a depreciation schedule, now’s not a bad time to be contacting the quantity surveillance to potentially do that because you just get that extra year before 30 gin comes in, but now we’ve got four years. So you get to go back really that fifth year, if you, if you don’t do it before 30 June.

Ben Kingsley:

So that is, that is interesting. So we will put that into the show notes because that is new information. As I said, I’ve learned something today as well. And it just goes to show it’s it really is important from a cash flow point of view and that money you are entitled to it is a legitimate claim. We are not talking about doing anything that’s untoward here. It’s, it’s absolutely money for jam that’s available to you. So, you know, don’t leave that money on the table. So Hey Julia, we’ve covered a lot of ground here today. There’s a lot of information here. Again, I say it at the end of every episode, we do our goal is to take a deeper dive into some of this context because these rules can be quite complicated, but the best person to talk to is naturally your specialist accountant who does know this stuff inside out, this is what they do.

And so that’s where you do get the value out of going to a specialist accountant in these particular areas. So Julia, I wanna thank you again for your time. And I wanna remind people about the previous episode. So how do I do that? It’s really simple. If you are listening to this on the property couch podcast, then just go into the show notes and you’ll see the links to all the important information that we’ve talked about today, plus links to the previous episodes. And finally, there’s also a link in there that if you do not have a property investment savvy accountant in your team, and you want to try and make sure that you are maximising all your entitled deductions, then please also check out the link there to talk to one of our accountants. If that’s something of importance to you who do specialise in property, and investment taxation if you are watching this video of Julia and I chatting all things, property tax, then just go down to the bottom to the description notes and you’ll also see all of those links that are available to you as well, including the ability to book a free, no-obligation initial consultation with one of our tax advisors.

So thanks again, Julia. Next episode we are gonna take a deep dive into structures. We’re gonna unpack the pros, the cons, and then really tell the audience how to keep it simple. So I’m looking forward to that. That’ll be coming out over the course, you know, we’d normally wanna do about four of these a year. So I’m excited about getting that one out. Hopefully July/August might be our timeframe on that one. So thanks again for your time. Also before I go, if you want to have a look at some of the awesome rich content around all the work that Julie has done, don’t forget to check out the band tax website. And for those people who don’t know it’s the, the spelling of it, it’s B A N T A C S so Google band tax and you’ll find the links to Julie’s basically wealth of knowledge and also all of the articles and updates that she’s been providing with her tax expertise to the, to the band tax group of accountants around Australia. So some rich knowledge there as well. So thank you Julia for your time and look forward to chatting to you in a couple of months’ time when we talk what’s structure to buy your investment property in.

Julia Hartman:

Thank you, Ben. I look forward to the next discussion.

Bryce Holdaway:

Hey guys, Bryce here, again, just wanna catch you before you go and let you know if you are new to our community, there are a lot of episodes to catch up on, but it’s really important that you start from the very beginning at episode number one, press episode one through to 20 share all of the foundational pillars and frameworks that you need to know to get the best out of listening to this podcast. So I’d recommend that you start there. And the little tip is to maybe start on one and a half speed. Now, for those of you that are time-poor, and don’t have time to go back from the beginning. Don’t worry. We’ve got you covered as well. Cause we’ve created a binge guide that goes through all of the details and makes it easy for you to read and get up to speed very, very quickly.

So if you go to the property couch.com.au/fast track, you’ll be able to download that binge guide and you will be up to speed in no time. And whilst you’re there, I’ve got a few extra goodies for you because we have our top five frameworks that you’ll learn on this podcast, as well as the make money simple again, ebook, which will help you with the foundations of basic money management. So you’ll have everything you need to succeed in building your own lifestyle design and getting the best out of this podcast. Now, just a reminder that anything that we cover on this podcast is not considered financial advice. We certainly recommend that you get your unique circumstances, looked at by your individual advisor and everything we talk about is just general in nature. The folks I wanna encourage again, to go to the property couch.com AU slash fast track, and you can go and get all those goodies and catch up.

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