Don’t invest in property if you expect the tax office to make it easy for you to maximise your returns and reduce your taxation on income. Property generates a broad array of opportunities to claim deductions, but you need to talk to experts who know this area intimately to make sure you get the most cost effective results. One area of opportunity has been the establishment of specific Small Business legislation where a $20,000 threshold for deductions has been introduced. However, because you need to be running a Small Business (with an annual income < $10m) and the property needs to be part of that business; it is very unlikely that you can take advantage of this level of deductions for the property related assets. Property is not typically viewed as part of the Small Business regime, so this means the property needs to be dealt with in the usual way by identifying the correct starting values for individual plant items and the historic construction values for capital allowances.
In addition, good property management is an area where you can enhance the deductions by keeping track of changes to the property, including refurbishments by the sitting tenant and turn-over of tenants. In both these cases, active reviews of the tax deductions should be considered, as there can be massive write-offs generated to offset taxable income of the landlord. A simple example of the difference this makes is where a tenant decides to change floor coverings – think about the write-off of the old ones and the same applies to all other elements including ceilings, partitioning, etc.
Another “missed” opportunity is where insurance damage might involve replacement of a roof or wall – the new work is not claimable because the tenant/landlord has not incurred capital expenditure, BUT there have been items removed which can be written-off and thereby create accelerated deductions. Good management will always look at these aspects to ensure extra deductions are captured and new capital works claims are properly analysed and documented. Particularly important, is any change associated with a make good requirement at the end of a lease or any landlord contribution to tenant fit-out at the start of a lease.
Tenancy fit-outs are often “partly financed” by landlords, which means there is also a benefit which comes from deductions while that fit-out remains in place, so recording and analysing such costs is beneficial. Expecting Accountants to identify and assess these sorts of activities will normally see it ignored or poorly dealt with due to time constraints, so make it part of your regular thought process whenever capital costs are incurred .
