Under income tax laws you can claim the expected decline in value of depreciating assets in your investment property.

There are two options available:

Division 40 Commonly know as “Depreciation”
Division 43 “Capital Works” deductions

Division 40
Under income tax law you can claim the expected decline in value of depreciating assets in your investment property. Your Accountant will calculate this for you. For items costing $300 or less, an immediate deduction is available. Otherwise your deduction is calculated by using the Prime cost or Diminishing Value method.
Both are based on the effective life of the asset. Your accountant will work this claim out for you.
(Further reading IT 2685, TR 2000/18)

What can be depreciated?
Tax Office: “…any items that are articles within the ordinary meaning of that word”

This means any item which is separate or individual and does not form part of the building structure, eg an oven would be a separate article if it is not fixed to or otherwise part of the building and if it will require replacement within a relatively short period. (Further reading TR 2004/16)

Division 43
Division 43 If your property was constructed after 18 July 1985 and/or altered, extended or structurally improved after 27 February 1992, you may be eligible to claim a “Capital works” deduction calculated as follows:

Date Rate % Number of years
18/07/85 – 15/09/87 4.0 25
15/09/87 – current 2.5 40

Your deduction is calculated from the day the building is first used after completion of construction, and is based on the construction expenditure or structural improvement made.
It includes:
• All fees associated with the design, survey, engineering and council approval
• Any earthworks and retaining walls
• Cost of building construction
• Cost of fencing

Excluded items are the land cost and costs for landscaping and clearing/demolishing of existing structures.

WARNING: The amount you claim for decline in value of depreciating assets may be subject to a balancing charge when the property is sold. Discuss this issue with your Accountant before disposing of property.

For more information check this Tax Office Download
http://www.ato.gov.au/content/downloads/NAT1729-06.pdf

Frequently asked Questions
Q: What is the difference between a repair and a capital improvement?
A: Repairs are the costs incurred in restoring the asset back to the condition it was at the time the property first became income producing. A capital improvement takes it a step further and improves the asset beyond the original condition.

Q: What if I don’t know the original cost of items?
A: The Tax Office will accept estimates of values that are made by a Quantity Surveyorso that you can receive maximum tax deductions.

Q: Can I claim an item for both deprecation and capital works?
A: No, you cannot “double dip” and claim an item under both Division 40 and 43.

A tip, always take photographs of the property when you first acquire it – and keep them as evidence of the original condition of the property.

I hope this answers your question,

AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources

“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”

The auction rooms are a great place to pick up bathroom & kitchen goods and are usually advertised in the Saturday edition of the newspaper. If not have a look at http://www.graysonline.com.au/
The drawback with the auction rooms is time, inspecting the goods before auction, attending on the day waiting for your lot to come up & then usually having to pay and remove the goods within 24 hours.

I’ve heard quite a few people buying off ebay or try the excess builders stock website at http://www.xsstock.com.au/

If you’re after some reno tips on how to target your reno to suit a particular market then pay our website a visit (see link below)

Best wishes,

AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources

“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”

Don Nicolussi is the owner, and also a member on this forum. He’s a pretty reasonable guy so why not drop him a line.
Here’s the link to the site:
http://www.cashflowproperties.co.nz

AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources

“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”

Hi Timothy,

Welcome to the world of property investing.

Michael has some very sound advice for you there, and as you gain more knowledge and experience your confidence will grow. There is no Get-Rich-Pill you can take, but you will need a strong desire to succeed. To be successful in property you really do need a good system in place, so my advice would be to follow our 7 step process.

Step 1 Set your financial goals
Step 2 Prepare a budget
Step 3 Set an investment strategy
Step 4 Build your team
Step 5 Start researching
Step 5 Prepare a Feasibility study
Step 6 Negotiate the deal and repeat!

Best wishes,

AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources

“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”

Hi Sean,

Probably the most experienced Property Developer on this forum is Michael Yardney so perhaps try dropping him a PM (personal message)

If you’re passing a book store I’d recommend grabbing a copy of “Australian Residential Property Development” by Ron Forlee, published by Wrightbooks.

Best wishes,

AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources

“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”

As usual Richard and Marg are spot on. Here’s an extract from our website that explains further how Capital Gains Tax works.

Capital Gains Tax
Capital Gains Tax (CGT) is the tax paid on any Net Capital Gain made on an asset that is sold, and is included in your Income Tax Return. CGT is not a separate tax but forms part of your income tax payable.

The system has changed over the years since inception on 19th September, 1985 so we recommend you seek independent professional advice from your Accountant.

Two methods to calculate CGT
(1) Indexation
Applies to property purchased up to 21 September, 1999 where the cost base is indexed according to inflation.

(2) Discount (Current Method)
A 50% discount (on assets held at least 12 months) is applied to your Net Capital Gain. This discounted amount forms part of your taxable income and is taxed at your marginal rate, up to a maximum of 48.5%

One third discount applies to Superannuation Funds and there is no discount for Companies.

Keeping records
You must keep your records for 5 years from the date you sell the property.

Balancing Charge
To calculate the capital gain your Accountant may need to reduce the “Cost Base” to the extent that it includes amounts you have previously claimed for Depreciation and Capital Works deductions.
If you are intending to sell a property, we strongly advise that you discuss this issue of GCT with your Accountant before you sell the property, to ensure that you are aware of the CGT implications.

What date on the contract is used to assess CGT?
The date on the Contract of Sale is used for CGT purposes – regardless of when settlement occurs.

AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources

“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”

It sounds like Richard has once again come up with a great solution.

To get back to your original question though of “What is equity?”

Equity is the difference between your total property value (Assets)and total mortgage (Debts) . Hopefully Assets are higher than Debt!!

AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources

“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”

Hi Jono,

When purchasing your investment property, the decision as to which type of entity is best for you is one not to be taken lightly.

To select the best structure, consult your Solicitor and your Accountant. This should be done before signing the Contract of Sale or any other legal document. They will consider all the main issues that are relevant to you and your individual circumstances – including other personal factors.

Trust ownership is probably the most flexible way to own an investment property. The most common Trusts are:

Discretionary Trust
A discretionary trust is often referred to as a “Family Trust”. It provides flexibility in sharing income within a family and can operate for up to 80 years.

Income is distributed according to the trustees’ discretion, by allowing the income to be distributed to lower tax earners and relatives, including children (conditions apply).

Some advantages are low establishment costs and asset protection, as only the trustees can be sued. Disadvantages include the fact that if there are losses, these will be quarantined within the trust and cannot be distributed to beneficiaries. Therefore a discretionary trust may not be suitable for investors who practice negative gearing – unless the trust receives income from other sources. Also, land tax thresholds are lower than for individuals.

Unit Trust
In a unit trust, the trustee holds assets on trust for the unit holders. A unit in a unit trust is like a share in a company, as it reflects your wealth in the unit trust. A trustee can be either a company or an individual. Advantages of unit trusts are that they are cheaper and more flexible than a company setup, non family members can own units, and also the fact that they can borrow money and carry on business. The main disadvantage is that the trustee has no discretion in the distribution of income, as the distribution is determined by the unit entitlement which was agreed when the trust was established.

Hybrid Trust
There are many types of hybrid trusts, but essentially they all have many of the common features of unit trusts and discretionary trusts.

However, a Hybrid Trust has a number of beneficiary classes equal to the number of unit holders. The trustee, at its discretion, may make both income and capital distributions to beneficiaries in proportion to the number of units they own. Therefore, as the beneficiaries are entitled to a fixed distribution of income, they can claim tax deductions in earning that income (ie.interest on borrowing) This effectively allows negative gearing.

Advantages of hybrid trusts are that they provide asset protection, offer the 50% capital gains tax relief and also have estate planning benefits. However, a disadvantage is that if they are not correctly established or run, they are at risk of being challenged by the Tax Office and may not protect the assets of the trust.

I hope this provides you with some background knowledge before talking with your Accountant and Solicitor.

AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources

“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”

You are most welcome. Maybe everyones watching the Tennis tonight, I think Federer is playing!!

AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources

“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”

I’m just amazed and shocked at the news. I’ve re- written this post several times just trying to find the right words. Depression is a real sickness, that often gets ignored, and has sadly claimed another victim. What a waste of talent.

AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources

“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”