Blog / Property Management
Liam Hannah, Money For Jam
Most of us become dazed and confused when anyone mentions depreciation and tax. But if property managers depreciate properties properly, they could save their landlords thousands of dollars. Luckily, property managers don’t have to do it all on their own. For a very small fee, Liam Hannah and his software program ‘Property Returns’ can do all the hard work for you.
Mr Hannah, CEO of Property Returns, is a qualified quantity surveyor and a registered tax agent who has found tax fascinating since he was 12 years of age. He has devoted his adult life to understanding the tax system and working out ways that landlords and property managers can benefit from the full range of tax deductions available.
Property Returns specialises in preparing the tax depreciation schedules for residential and commercial investment properties. Statistics show that as many as four out of five investors are not claiming or doing their depreciation schedules properly. Depreciation starts from the actual settlement date of the property so many investors are missing out on great deductions in the first few years. That’s serious money that they are missing out on – often thousands of dollars.
Part of the problem is that as soon as we mention the word tax or depreciation, many of us suddenly suffer a brain freeze and call in the tax accountants. Many property managers and landlords think it’s all too hard so give up before they start.
This is where Property Returns can help. Property Returns puts the power in the hands of the landlords and property managers. There’s no need to call in the bean counters and tax agents. Property Returns gives landlords and property managers a framework that enables landlords to increase their yields. The easy to use software program captures the information at settlement date, and then tracks the property and produces depreciation schedules over the lifetime of property ownership. Mr Hannah said, “When the property manager inputs the inspection, the program and process calculates the maximum depreciation deductions, which increases the landlord’s yield.” The software is very simple to use. At the point of property inspection, all you have to do is fill in the details of the property. You have to list items such as the plant assets, note the total floor area of the carpet or vinyl for example and include a picture, note the gross floor area of the property, determine if the previous owner has done any work and so on. Once all the information is captured, from when the property was first constructed to when the landlord bought it, and put into the database, Property Returns swings into gear. The benefit of Property Returns is that it requires very little additional work for the property manager other than the normal property inspection and loading of the data into the system. Providing a direct link to its tax agents, quantity surveyors and depreciation experts, Property Returns does all the calculations and produces a report which property managers can then forward to their landlords to inform them of their full tax deductions. This is a valuable additional service that can help property managers to win business. “It’s a great opportunity to contact your existing landlords and future landlords with a very genuine offer,” said Mr Hannah.
A little bit of background about depreciation…
In 1985, tax depreciation was introduced for residential buildings. The government introduced it at an effective life of 25 years at 4 per cent per annum. Buildings built post-1988 receive 2.5 per cent, which is a 40- year effective life on the original construction costs of the building.
What happens when you depreciate...
A pre 1988 one bedroom apartment in Manly The previous owner had done a little refurbishment and with the new appliances added, the current landlord now receives $4000 in tax deductions in the first full year.
Mr Hannah said, “A new residential house will receive anywhere from $8,000 to $15,000 in tax deductions in the first financial year. And it’s important to note when you’re looking at older properties, if you had to replace those whitegoods, if you had to replace the floor coverings and anything with a small motor in it, how much would it be to buy and install those items? And that’s just fundamental one. That’s just the plant assets.”
The Property Returns program has been built into four fundamentals to bring light and transparency into the methodology behind the calculations of depreciation. Agents are required to input information on the four following areas:
Number one: Note the plant assets.
Plant assets are items like whitegoods, removable floor coverings, floating timber floors, vinyl, carpet, window coverings such as blinds and curtains, anything with a small motor, hot water units, ceiling fans, and motor garage gates. All plant assets contained within a property resume a new effective tax life and get revalued as an apportionment of the new purchase price.
Number Two: Note the Original Building allowance.
This is what the building cost to build from original construction. Post-1988 properties receive a capital works allowance over 40 years, which is 2.5% of the historical costs of construction.
Number Three: Note any pre-purchase renovations or extensions.
If a previous owner has put on a pergola or renovated the kitchen, an approximate year will be determined and an allowance given that can be depreciated over 40 years, which is 2.5 per cent of that renovation starting from when it was built.
Number Four: Note expenditure after settlement date or postpurchase expenditure.
This includes things like a new dishwasher or new carpet, or just repairs and maintenance. If you can record the actual invoiced amount and the date that it was installed inside the property, the tax agent can then put together a depreciation schedule for that tax year.
The cost of this service is currently only $330. If you would like more information, you can contact Liam Hannah directly through the website at www.propertyreturns.com.au
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