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Investors lag behind on rental rewards

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ALMOST two million Australians are expected to declare rental income in their tax returns this year, but less than 40 per cent will make a profit and pay tax on this income.

The Australian Taxation Office says the majority of residential investment properties make a loss, with expenses far exceeding rents.

In most cases, this is a deliberate strategy, as investors offset the need to pay tax by claiming borrowing costs, capital works and other expenses, leaving them to build up capital gain as the property value increases over the years.

Yet many landlords could still claim more, experts say.

Latest statistics from the ATO show that despite earning $28 billion in rents last year, Australian landlords still reported a $4.8 billion loss.

Borrowing costs were the biggest contributor to the losses, as interest rates, alone, counted for almost $18.5 billion in expenses.

Depreciation was the next biggest single expense.

brought to you by the quantity surveyor industry...

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What items can be claimed via depreciation and to what level?

you can claim depreciation on almost everything in a property. you write off the item over it's effective life. so for instance a building built after 87 has an effective life of 40 years, after which it is deemed to have no value. so 2.5% of the value of the building PA is the deduction - this is just the bare bones of the building, everything in it has a separate effective life and can be written off over a different period.

the exact effective life of individual items is a state secret (or at least an ATO website secret) only available to quantity surveyors (having made that cynical statement a QS report is gold, and well worth the outlay). you could call the ATO and get the schecule.

Looking around my house here are some very wild guesses as to the effective life of items:

carpet - 7 years

tiles - 20 years

A/C - 7

heating -7

oven - 10

hot plates - 7

dishwasher - 7

paint -7

blinds - 6

pool

deck

patio

driveway

clothes line

letterbox

door bell

kitchen cabinets

bathroom tiles

bathroom sink

door to shower

toilet bowl

toilet cistern

alarm system

laundry sink

laundry fittings

etc etc etc

A QS estimates the value and age of all these things, puts them into the puter and spits out a depreciation report. If I had an IP I would continue to do my own tax, but would definitely get a QS report done.

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Thanks team. What a racket!

but if i understand correctly, doesn't the depreciation get subtracted from the initial purchase price when it comes to calculating the capital gains? i.e., you buy a house for 500k, claim 200k of depreciation over the course of 10 years and then sell for 700k means you pay CGT on 400k, right? of course since you get to deduct the depreciation off your marginal tax rate and CGT is calculated at a lower rate you still come out ahead...

as bernie says, what a racket.

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but if i understand correctly, doesn't the depreciation get subtracted from the initial purchase price when it comes to calculating the capital gains? i.e., you buy a house for 500k, claim 200k of depreciation over the course of 10 years and then sell for 700k means you pay CGT on 400k, right? of course since you get to deduct the depreciation off your marginal tax rate and CGT is calculated at a lower rate you still come out ahead...

as bernie says, what a racket.

Unless I can find a 'greater fool' I'm going to dump my PPOR onto the rental market in a year or so and be a renter myself in another state. Just trying to figure out how I can counter screw the govt in thanks for what they are doing to me via Super, Health etc. Don't get angry, get even.

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but if i understand correctly, doesn't the depreciation get subtracted from the initial purchase price when it comes to calculating the capital gains? i.e., you buy a house for 500k, claim 200k of depreciation over the course of 10 years and then sell for 700k means you pay CGT on 400k, right? of course since you get to deduct the depreciation off your marginal tax rate and CGT is calculated at a lower rate you still come out ahead...

as bernie says, what a racket.

yes, but only depreciation related to capital works (ie building)

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Unless I can find a 'greater fool' I'm going to dump my PPOR onto the rental market in a year or so and be a renter myself in another state. Just trying to figure out how I can counter screw the govt in thanks for what they are doing to me via Super, Health etc. Don't get angry, get even.

If you do that make sure you think about CGT. Get a valuation (valuer not REA) when you move out and consider the 6 year absence from PPOR rule. You may end up buying in your new state (esp if prices drop). while you can only have one PPOR you don't have to decide which one it is until disposal. if you sell one then gains on each will determine which one you decide is your PPOR. also if your new purchase is deemed to not be your PPOR and you sell it then the otherwise, and not deducted expenses will be added to your cost base. see your accountant.

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If you do that make sure you think about CGT. Get a valuation (valuer not REA) when you move out and consider the 6 year absence from PPOR rule. You may end up buying in your new state (esp if prices drop). while you can only have one PPOR you don't have to decide which one it is until disposal. if you sell one then gains on each will determine which one you decide is your PPOR. also if your new purchase is deemed to not be your PPOR and you sell it then the otherwise, and not deducted expenses will be added to your cost base. see your accountant.

They are clamping down on living away from home arangements though (From July 1st) so I wonder if they are clamping down on this rort as well?

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They are clamping down on living away from home arangements though (From July 1st) so I wonder if they are clamping down on this rort as well?

I'm not living away from home, I'm going to be moving lock, stock and barrel (you know where :thumbsup: ). Good to see you around mate.

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They are clamping down on living away from home arangements though (From July 1st) so I wonder if they are clamping down on this rort as well?

no they are not, but it might be an easy target in the future.

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no they are not, but it might be an easy target in the future.

I thought that there were changes as well. No grandfather clause to existing arrangements but changes for new people.

http://www.lafha.com.au/news/12-05-17/Non_Residents_Denied_Transitional_Rule.aspx

Non Residents Denied Transitional Rule

May 17, 2012

The Australian Government has confirmed this week that there will be no transitional rules available to temporary residents in the recently outlined changes to LAFHA legislation.

Further updates were released this week in relation to the LAFHA reforms announced in the 2012-13 Budget and 2011-12 Mid-Year Fiscal and Economic Outlook.

The updates have confirmed that there will be no transitional rules available to temporary residents. All temporary residents who are not maintaining a home in Australia (that they are living away from), will lose access to the concession as of 1st July 2012.

The updates also confirmed:

- Permanent residents who have LAFHA arrangements in place prior to 7:30 (AEST) 8th May 2012 can continue under the old rules until 1st July 2014. Unlike new arrangements, they are not required to maintain a home in Australia and the concession will not be limited to a maximum of 12 months. However;

- The requirement to substantiate expenditure against the allowance will come into effect 1st July 2012 for ALL employees.

- To facilitate the substantiation requirement, the administration of the allowance will transition to the income tax system. This will have the following consequences:

  1. The allowance will be assessable income to the employee and reported on their year-end payment summary;
  2. Provided the eligibility criteria is met, the employee will be able to deduct expenditure for accommodation and food on their income tax return;
  3. Only food expenses in excess of $110 per adult and $55 per child (under 12) will be deductible;
  4. To relieve the compliance burden, substantiation for food expenses will not be required unless the expenses exceed an amount specified by the Commissioner (amount yet to be specified);
  5. Accommodation expenses can be substantiated by lease agreements, mortgage documents or other accommodation receipts.

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I thought that there were changes as well. No grandfather clause to existing arrangements but changes for new people.

http://www.lafha.com...ional_Rule.aspx

we were discussing CGT exemptions not living away from home allowance. they are completely different things.

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I'm not living away from home, I'm going to be moving lock, stock and barrel (you know where :thumbsup: ). Good to see you around mate.

Why are you moving?

Where to? PM me if appropriate.

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Why are you moving?

Where to? PM me if appropriate.

he's going to tassie, of course! there was a job opening in my field in tassie a little while back... i was very tempted.

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From hot&sweaty to freezing your n@ts off! That's quite a contrast.

He gets a cool hat though!

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From hot&sweaty to freezing your n@ts off! That's quite a contrast.

Tassie is a tropical desert island compared to Canberry.

You are a lucky, lucky bastard TP! Lovely place.

You'll need a hip flask as well as a hat to hold the tasmanian malt. Possibly a walking stick concealing a fine blade. They are mostly descended from convict stock so take care.

Don't forget the Rangerover, barbour jacket and fly fishing rig to go with the dog and gun.

Battery point is the pick of the real estate. Make sure theres a spare room for guests. :)

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Don't forget the Rangerover, barbour jacket and fly fishing rig to go with the dog and gun.

Battery point is the pick of the real estate. Make sure theres a spare room for guests. :)

Will be renting in Battery Point or Sandy Bay until I buy a few acres of fertile with some salty views when I perceive the market has wiped 40% off its 2009 prices.

I was thinking more twin cab 4WD ute for practicality and a Merc 250CGI or a 530D to work those magic country roads. :naughty:

Got ALL the fly fishing gear I need. :thumbsup:

From hot&sweaty to freezing your n@ts off! That's quite a contrast.

Affordable large tracts of land with views <30mins from CBD, limited road congestion, $85 and 50mins to Melbourne, big trout, scenery, log fires, nice roads to scrape a peg or manipulate the oversteer, picturesque towns.....

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Will be renting in Battery Point or Sandy Bay until I buy a few acres of fertile with some salty views when I perceive the market has wiped 40% off its 2009 prices.

I was thinking more twin cab ute for practicality and a Merc 250

Affordable large tracts of land with views <30mins from CBD, limited road congestion, $85 and 50mins to Melbourne, big trout, scenery, log fires, nice roads to scrape a peg or manipulate the oversteer, picteresque towns.....

Walk through battery park and soak up the history. A short flight of steps takes you down to gourmet foodsville in salamanca markets.

You know I wish that Tassie had jobs. Your own unique profession affords you the opportunity for employment at rates the locals dream of. Well done sir. :)

If you want pure class then buy a series 3 landrover short wheel base and sub the original motor for a holden 202 long six.

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