Moving towards Christmas and the new year, many property investors will be looking for ways to maximise their tax benefits and increase their cash flow. To this end, I have decided to share the following article by BMT Tax Depreciation, which appeared in the November edition of Century 21 Wentworth's Property Investor.
Understand low-value pooling
By Bradley Beer, Managing Director of BMT Tax Depreciation
Low-value pooling is a method of depreciating fixtures, fittings, plant and equipment within a property at a higher rate to maximise deductions, which will increase an owner's annual cash flow. The following categories of assets can be allocated into a low-value pool:
Low-cost assets: a low-cost asset is a depreciable asset that has an opening value of less than $1,000 in the year of acquisition. This can include cooktops, rangehoods, exhaust fans and blinds.
Low-value assets: a low-value asset is a depreciable asset that has a written down value of less than $1,000. That is, the value of the asset is greater than $1,000 in the year of acquisition. However, the remaining value after previous years' depreciation is less than $1,000. Assets meeting this classification are placed in an itemised, low-value pool. An example could include a hot water system valued at $1,100. In the second financial year after installation, the asset would have depreciated to a written down value less than $1,000, which would make it eligible to be placed in the low-value pool.
Property investors who place assets in the low-value pool are able to claim them at a rate of 18.75 per cent in the year of purchase, regardless of how long the property has been owned and rented. From the second year onwards the remaining balance of the item can be claimed at a rate of 37.5 per cent. This rule allows for an increased depreciation deduction on qualifying assets.
Assets which form part of a group with a total cost exceeding $1,000 can cause confusion. For example, if a house has a set of six blinds costing around $3,000, it would seem that the set does not qualify for the extra depreciation available in the low-value pool. However, these blinds can be depreciated at the higher rate as they qualify for the low-value pool as individual items.
A specialist quantity surveyor will always use legislation available to maximise depreciation deductions.
A BMT Tax Depreciation report will always apply low-value pooling to increase the rate of depreciation, boosting the cash return earlier for the property owner.
For more information on BMT Tax Depreciation's Australia-wide service, please call 1300 728 726 or visit www.bmtqs.com.au.