Following one of our recent articles where we revealed the insiders advice to short term leasing your property, a number of our readers have asked for some clarity about the tax situation with short term leasing. Luckily, our friends at BMT Tax Depreciation have come on board to impart their wisdom & knowledge about all things tax related.
Bradley Beer, the Chief Executive Officer at BMT, joined BMT in 1998 and has substantial knowledge about property investment supported by expertise in property depreciation and the construction industry.
If you’re planning on buying a holiday home or turning an existing property into a short-term rental you need to be aware how this will transform your tax situation.
While some people believe they will be paying lots of extra tax with an income producing property, some of the tax implications can actually benefit the property owner. This is because they are able to claim depreciation for their short-term rental.
5 Short Term Leasing Tax Facts From The Experts
1. Claiming Wear & Tear
Over time, any building and the assets contained within it will experience wear and tear. Legislation allows the owners of any income producing property to claim this wear and tear as a tax deduction called depreciation.
2. Claiming & Using Your Holiday Home
Many holiday home and short term rental owners think that because they make use of the holiday home themselves, they aren’t eligible to claim depreciation. However, this is not true and often sees short-let owners missing out on thousands of dollars in valuable deductions.
3. When Can You Claim For?
Short-let owners should be aware that they are able to claim depreciation for any period of the time when the property is genuinely available for rent – they just can’t claim depreciation for any portions of the year when it is occupied for personal use.
4. Dear Diary,
Accurate diary keeping is crucial in short-term lets. This ensures you know the precise dates you’ve occupied the property yourself and when it was available for lease. You can then maximise the deductions that you’re legally entitled to and won’t be on the wrong side of the Australian Taxation Office (ATO) come tax time.
5. Claiming Tax Depreciation
There are a few things short-let owners can claim depreciation for. This depends on factors relating to the specific property such as its age and whether it is a second hand property*. Generally speaking, owners can claim for capital work deductions (permanent items such as concrete and windows) and plant and equipment assets (easily removable assets such as smoke alarms and window blinds). As holiday homes are usually furnished, this can boost the plant and equipment deductions the owner can claim*.
While depreciation is obviously a positive tax benefit for short-let owners, they must also consider other tax implications, such as how they will be affected by the Capital Gains Tax (CGT) when it comes time to sell the property one day.
*Under proposed changes outlined in draft legislation (section 2 of Treasury Laws Amendment Bill 2017). Those who exchange contracts on a second hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on plant and equipment assets. Investors who purchased prior to this date and those who purchase a brand new property will still be able to claim depreciation. Investors should note that these changes are not yet law. The legislation still needs to be passed through the senate for confirmation. BMT Tax Depreciation remain in discussion with government around the new changes. We will keep our clients informed on the outcome. To learn more visit www.bmtqs.com.au/budget-2017.
Here’s some other financial advice articles we thought you might appreciate :
- 5 Things You Need To Know About Claiming Tax Depreciation on Your Property
- Insider Advice to a Quick Tenancy Turnaround Time
- How To Choose the Right Landlord Insurance For You
- The Best Financial Advice You Need To Buy Your First Home
- How To Buy A House : 9 Things You Need To Know Before Signing