25 May How not to leave any money on the tax table
Brad Beer from BMT Tax Depreciation explains how you can get the maximum deductions available from your investment properties. Handy advice in the lead up to the end of financial year.
Kevin: In the lead-up to the end of the financial year, investors will be busily preparing their documentation to ensure that they claim the maximum deductions available for their investment properties, and why wouldn’t they? Now, of all the deductions that an investor is entitled to claim, property depreciation continues to be the one that is most commonly missed. I wonder why that is?
Brad Beer, who is the Chief Executive Officer of BMT Tax Depreciation, joins us. Is this one of the most misunderstood deductions, Brad?
Brad: Yes, I think it’s misunderstood. Because you don’t pay for it and it’s a non-cash tax deduction is probably one of the big reasons that that is the case. People don’t understand that if they haven’t paid for it they may still be able to get a deduction for it. They don’t really understand much about their investment property sometimes, so it’s often missed.
Kevin: From your experience, how many actually miss out on depreciation deductions?
Brad: We’ve done some research, and probably close to 80% of investors don’t maximize their deductions. It’s not that they’re missing out altogether, but it’s that they’re not claiming as much as they can claim. It’s because they guessed, their accountant guessed, or they used some information provided. It needs to be done properly so that you can get the maximum deductions, because if you don’t, you’re just leaving cash on the table.
Kevin: You’ve obviously looked into this. What are the most common reasons why investors don’t claim all their depreciation entitlements?
Brad: I’d call two of the most common things. One is that people sometimes buy investment property without a full understanding about the numbers. I think you really should crunch numbers. The most common thing I hear is, “That’s tax. I think my accountant looks after that,” or “I have got a good accountant.” Now accountants are our friends, but accountants also sometimes need specialists in certain areas to make sure you’re getting the most out of that property.
The second most common thing I would hear is that people think old property doesn’t get depreciation. It does. It’s not as much, and there are some things about age that do matter, but the important thing is that old property still gets some depreciation. Let’s find out how much, make sure it’s worth it, and get it assessed if necessary.
Kevin: Someone who is listening now may be a property investor who hasn’t been claiming depreciation or may be doubting whether they’re getting it all. What should they do?
Brad: It’s really easy. We’ve got calculators on the website or we could talk to you about your property. With the address, we can see some photos usually these days and get an indication of what sort of deductions could be claimed.
Have a check against your tax return and see what you are claiming, and if you haven’t been getting it all you can easily go back and amend up to two years of tax returns and can potentially get some money back from the tax office, which is always nice.
Kevin: I have read on your site about the site inspection process. What is that?
Brad: Depreciation is a claim on the wear and tear of the building and items within it. In order to work out what this claim is, it relates to the construction costs and the value of items in the property. In order to get that done properly, in order to find all of these things, we do a site inspection.
We go out and visit. We’re quantity surveyors. We estimate the construction costs of the property, we put the values on the items, we identify everything we can to claim as fast as we can. It’s important for the site inspection to make sure we’re thorough and we get everything we can so that we can maximize deductions and therefore your cash flow.
Kevin: Bottom line here, Brad, if we could. Could you explain the impact of depreciation deductions, and what sort of impact can they have on an investor’s cash flow?
Brad: It’s a good question. Depreciation is wear and tear of items to create a deduction. As I say, a non-cash tax deduction, so you don’t pay it out. What it means is a deduction that you don’t pay out. On average, a first-year deduction… Against the hundreds of thousands of residential depreciation schedules we’ve done, the first year claims around $10,000.
What that means is the first-year deduction is about $10,000 at your marginal tax rate. You get cash back in your pocket in some way. There are other numbers to be involved in this, but effectively it should mean if your tax rate is 47 cents on the dollar, it’s $4700 in your pocket. If it’s 30 cents on the dollar, that’s $3000 in your pocket. So it is cash that you do get back if it’s done properly.
Kevin: Brad Beer, who is the Chief Executive Officer of BMT Tax Depreciation, has been my guest. That’s something you should look into. You can use the link that’s on our website at RealEstateTalk.com.au to contact Brad and his team and just check. Find out whether or not you are getting all of those allowances that Brad has been talking about. Obviously, it’s going to make you a lot happier financially.
Brad, thank you very much for your time. It’s always great talking to you, mate.
Brad: Thanks, Kevin. Great to be here.