22 April

Maximising property tax deductions for the 2020-21 financial year – including case studies

If we look back over the past year, 2020 was definitely a year of uncertainty. Experts were predicting crashes to our economy, asking will Australia go into recession? The value of properties were set to plummet. Tenants wouldn’t be able to meet rent. Owners wouldn’t be able to pay mortgages. Expats were returning home. Frontline workers were looking to rent out rooms to keep their family and community safe. Would there be enough toilet paper!

The property market was a huge factor across so many different scenarios. With many of us falling into owning or renting a residential or commercial property, the Australian Government along with banks put systems in place to help stabilise our property market and minimise economic decline.

For many businesses, the pandemic has fundamentally changed the way they operate, for example some no longer want to lease office space and have set their people up to work from home. In the residential market, rents in some areas have increased dramatically. Interest rates have remained low, and our property market has shifted. House prices are currently strong - and increasing, CoreLogic says:

Lower density housing has continued to outpace higher density housing for capital gains.  Nationally, house values were 3.0% higher over the month while unit values were up a more modest 1.9%.  Across the combined capitals, the quarterly growth rate for houses (6.5%) is more than double that of units (3.1%).  “Despite the underperformance, unit markets have turned a corner, with Sydney recording two consecutive months of rising values, while the Melbourne unit market has seen values consistently rising since October last year, with the trend accelerating over recent months.”

Click here to read the full CoreLogic article.

More than ever, investors are seeking to maximise their investment returns as best as possible, and below we take a look at a few different property scenarios and how each have maximised their tax deductions during this pandemic:

Case Study - Converted a shed into a self-contained granny flat

Ally and Jaimie turned their shed into granny flat for Jaimie’s parents. Her parents had to return home from Thailand and had no principal place of residence to return to. Ally and Jaimie completed the renovation in May 2020 and the construction cost was $65,000. Ally and Jaimie are renting out the granny flat for $250 per week.

 shed into granny flat

Not only are they able to maximise their tax depreciation deduction, they are also able to claim deductions for:

  • Borrowing expenses

  • Insurance premiums

  • Interest expense

  • Mortgage insurance

  • Quantity Surveyors report

  • Rates

  • Repairs and maintenance completed on granny flat

Case Study - Frontline worker rented part of house

Our client Dale, who is a nurse, rented out part of his new principal place of residence to another frontline worker. Dale is renting out the room for 15 months, with his co-worker set to return home at the end of the 2021 financial year. 

His house was a brand-new build, with construction completed in April 2020. The build cost was $378,000.  Dale spoke to his accountant who had determined he could claim 25% of the total tax depreciation deductions that were available to him during that time, and advised him further on the potential Capital Gains Tax Implications should he want to sell in the future:

frontline worker table tax depreciation results

Dale is also entitled to claim deductions for the following expenses with his accountant:

  • Insurance premiums

  • Interest expense

  • Mortgage insurance

  • Quantity Surveyors report

  • Rates

  • Utilities and Internet

  • Cleaning

  • Lawn maintenance

  • In house audio and video (e.g. Foxtel)

Case Study - Small business using immediate write-off for new assets

A manufacturing facility that we prepared a tax depreciation schedule for, three years ago, purchased 50 electronic sanitising stations in June 2020. The total cost for these electronic sanitising stations was $25,670. We advised our clients that these are considered plant and equipment items and that they can write them off immediately.table for federal government announcement

****If you have purchased sanitising stations or any other plant and equipment items such as an air conditioner, partition walls, or a motor vehicle during the pandemic, check out the instant asset write-off rules - click here for more information.

Case Study – Purchased an older property as an investment

Debbie and Malcolm expanded their portfolio and purchased a property for their daughter who struggled to find a rental during the pandemic.  The house they purchased was an older property, but the kitchen, bathroom and patio had been renovated by the previous owner. The settlement date was 27/6/2020 with a purchase price $372,000. Over the first five years of ownership – their tax depreciation deductions will be over $9,000.

expanded portfolio

  • Accountant fees

  • Bank charges

  • Borrowing expenses

  • Pest control

  • Lawn maintenance

  • Gardening

  • In house audio and video (eg Foxtel)

  • Insurance premiums

  • Interest expense

  • Legal costs

  • Mortgage insurance

  • Rates

  • Repairs and maintenance

  • Rates

  • Repairs and maintenance

  • Security

If you are falling into one of the scenarios or maybe you have a different scenario again, remember there may be tax deductions that can help reduce your tax payable and hopefully create extra cash flow for you especially during the pandemic.

The end of financial year is not far away. To find out more information about your scenario and how to claim your tax depreciation deduction, call us on 1300 922 220, click here to learn more about tax depreciation.

Or visit the Australian Tax Office for further advice on the tailored support during COVID-19.

click to estimate tax depreciation deductions for rental property

About Mark Wilkins

Mark is an expert quantity surveyor, business owner, public speaker and property developer. With 20+ years experience in the construction and quantity surveying industry Mark’s specialist expertise have been sought in consultant capacity by professional bodies such as the National Institute of Accountants and the National Tax and Accountants Association, and he has presented at various property and tax seminars and expos nationwide. Mark holds a Bachelor of Construction Management from the University of Newcastle, is an affiliate member of the Australian Institute of Quantity Surveyors and a Registered Tax Agent.

View all posts by Mark Wilkins

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