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IMPROVE THE CASH FLOW OF AN AUSTRALIAN INVESTMENT PROPERTY

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Smart investors

Claiming property depreciation will help you to save

In Australia, depreciation claims can make a significant difference to a property investor’s cash flow. Despite this fact, of all the tax deductions available for investors to make a claim for their property, depreciation is the one most often missed.

Smart investors

Smart investors

Recent statistics from the Australian Taxation Office (ATO) suggest that only 30 per cent of property investors claim depreciation for available capital works deductions, and just 18.75 per cent claim the depreciation of plant and equipment assets. This is quite a significant number of investors who are missing out on thousand of dollars they are eligible claim.

So why are Australian property investors failing to claim the depreciation deductions they are entitled to? According to Bradley Beer, The Managing Director of BMT Tax Depreciation, there are a number of reasons.

“One of the main reasons investors fail to claim depreciation is because they don’t need to spend any money to be able to claim it. As a non cash deduction, investors are often unaware that there are already deductions available to claim for the existing building structure and plant and equipment assets contained within the property,” says Bradley.

“Another mistake property investors make is to assume they’re ineligible because they own an older property, or they may have only recently purchased their property and think because of the short term of ownership it is not worthwhile making a claim. The reality is, it is worth making an enquiry for any property,” said Bradley.

For those investors who are unaware of what depreciation is and are wondering how to go about making a claim, we’ll explain.

ATO legislation allows the owner of any income producing property to claim a depreciation deduction for the wear and tear of a buildings structure and the plant and equipment assets the building contains.

BMT Tax Depreciation

BMT Tax Depreciation

To claim depreciation, investment property owners should contact a reputable Quantity Surveyor that specialises in depreciation. In Australia, the ATO recognise Quantity Surveyors under Tax Ruling 97/25 as one of the few professionals with the appropriate construction costing skills to estimate building costs for depreciation purposes.

The Quantity Surveyor will arrange for one of their specialist staff to perform a site inspection of the property to take measurements, adequate notes and photos of all of the plant and equipment assets contained in the property. This information will then be collated to put together a tax depreciation schedule which outlines all of the claims available for the owner for the life of the property (40 years). The property owner’s Accountant will then be able to use this information to process a claim when they complete the investor’s annual tax assessment.

An investor case study

The following scenario shows how a property investor’s cash flow will be improved by claiming property depreciation.

Margaret purchased a two bedroom apartment for $528,000 one year ago. Her property was then rented for $470 per week, with a total income of $24,440 per annum. Expenses for her property including interest, rates and management fees totalled to $37,935.

After calling BMT Tax Depreciation, Margaret found that she would be able to claim $9,938 in depreciation deductions. The following scenario shows Margaret’s cash flow with and without a depreciation claim.

2013_TM1-2-bedr-unit

Before claiming depreciation, Margaret would experience a loss of $164 per week for the first year of ownership for her property. Simply by claiming depreciation, Margaret was able to turn her cash flow position into a more positive one and reduce her loss to just $93 per week. In total BMT Tax Depreciation were able to save this investor $3,692 in just one year.

Handy resources for smart investors

Savvy investors often want to learn more about the benefits of tax depreciation. To help ensure investors are not missing out on valuable deductions and to provide extra information, BMT Tax Depreciation provides a variety of resources and applications listed below:

The BMT Tax Depreciation Calculator is a useful tool for investors to calculate the likely depreciation deductions available for any property. To download the Tax Depreciation Calculator for your iPhone or Android phone, simply click here. Alternatively, you can use the depreciation calculator online simply by clicking here.

BMT Rate Finder helps property investors and their Accountants to find out the effective life and depreciation rate for any plant and equipment asset that may be contained within any type of investment property, whether the investment property is used for commercial, industrial, manufacturing, retail or residential purposes.

Using Rate Finder you can search by industry or asset to find the effective life and depreciation rate of an asset for both the prime cost and diminishing value methods of depreciation. To download Rate Finder for your iPhone or Android phone, click here. Alternatively, to use Rate Finder from your desktop computer, simply click here.

BMT Resi Rates helps investors to find out the effective life and depreciable rate of any plant and equipment asset contained in a residential property. Resi Rates aims to assist Property Managers and property investors alike with disputes over damaged assets, and can assist with maintenance and replacement scheduling. To download BMTresirates for your iPhone or Android phone, simply click here.

Australian property investors who have any further queries about the depreciation deductions for their property or who would like a free over the phone estimate of their available deductions should contact BMT Tax Depreciation on 1300 728 726.

Article Provided by BMT Tax Depreciation.

Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Managing Director of BMT Tax Depreciation. Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia wide service.

Investing

Are clients truly getting value from their BR solution?

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Are clients truly getting value from their BR solution? 1

By Matt Dickens, Senior Business Development Director at Ingenious

Financial planners and wealth managers strive to deliver on the needs of their clients by always providing the most suitable and effective advice. But as with any service, this advice should also be delivered at the best possible value for the investor. Value can be simplistically defined as the service that delivers the most benefit, balanced against the financial cost, but in the estate planning space, how do you assess what good value is?

1. Total fees and charges

Product fees are guaranteed to negatively impact returns, so it is important to minimise their impact when looking to gain the best value from the investment. Some managers report little or no fees paid by the investor to the manager, but instead charge the company or investment service itself. While this might initially be seen as better value for the investor, it is not as simple as that. Investors in unlisted BR services become a shareholder of the portfolio companies, so the reality is that any fees paid by the companies are effectively being paid by the shareholder (or investor). Therefore, both investor fees and company fees will both negatively impact the final return and must be considered together.

Analysis of what a manager is paid by the investor and by the company over a significant period will enable an adviser to conclude if the manager is offering good value, or if a disproportionate amount of fees is going to the manager at the expense of their investors.

2. Real investment returns

Another key component of assessing value is what the investment actually delivers. For BR solutions, investors’ main objective is commonly to pass on the maximum sum possible to their beneficiaries upon death. This may lead to a conclusion that delivering Inheritance Tax relief at the lowest possible cost is the primary driver of value. However, especially for clients with longer time horizons, the one-dimensional goal of avoiding a potential 40% Inheritance Tax bill can easily over-shadow the equally important goal of aiming to steadily grow the investment, preventing erosion by inflation, drawdowns and investment fees. Unlike some IHT-focused solutions, such as trusts or gifting, investors in BR services do not have to accept zero growth of their wealth from the point of investment.  Instead, investors can continue to earn returns, either taking an income stream or increasing the final sum to be passed onto their beneficiaries, precisely in line with their original objective.

While most BR managers predict their ongoing returns at a certain level, those targets are not guaranteed and historic performance varies widely.

3. The relationship between fees and risk

Given that the majority of managers in the BR space state their performance targets net of fees, to produce positive growth and achieve their target return, those managers must first earn back any fees they are taking. Let’s take the below scenario to illustrate this point.

 Are clients truly getting value from their BR solution? 2Manager 1

Annual performance target, net of fees: 3%

Annual fees: 3%

Gross performance target: 6%

 

Are clients truly getting value from their BR solution? 3Manager 2

Annual performance target, net of fees: 4%

Annual fees: 1%

Gross performance target: 5%

Initially, it might appear that Manager 2 must be taking more risk to target a higher net return of 4% than Manager 1, who is targeting 3%. However, Manager 1 has to deliver an additional 2% of gross return than Manager 2, to make up for charging higher fees. Higher fees not only impact returns and value, but they can also mean greater risk.

Market comparison

In the Tax Efficient Review’s most recent analysis of Unlisted BR Services1, they released data that ranks services in the market in terms of both investor returns and total fees. IEP Private Real Estate achieved the top rank for returns delivered, with the second lowest total fees in the market, demonstrating that it represents attractive value for investors in comparison to other services.

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Investing

Reuters Events Launch Global Investment Summit Online Edition Uniting Institutional Investors, Asset Owners & Financial Institutions

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Reuters Events – today announced the agenda for their Global Investment Summit (Dec 3rd -4th). The 2-day strategic summit has been reimagined in the era of social distancing and will be broadcast free of charge to the public.

This Summit, with a diverse range of international voices and anchored by Reuters News-led sessions, is the only place for institutional investors, asset owners and financial institutions to come to terms with the events of 2020.

Click for more information and for complimentary registration to the online edition

The Energy Transition team report an industry leading speaker faculty for 2020, including:

  • Eileen Murray, Chair, Finra
  • Philip Lane, Chief Economist, European Central Bank
  • Gregory Davis, Chief Investment Officer, Vanguard
  • Hanneke Smits, CEO, BNY Mellon Investment Management
  • Pascal Blanque, Chief Investment Officer, Amundi
  • Desiree Fixler, Group Chief Sustainability Officer, DWS
  • Joe Lubin, CEO, Consensys
  • Bahren Shaari, CEO, Bank of Singapore
  • Mark Machin, CEO, Canada Pension Plan Investment Board

The agenda released by Reuters Events Investment is both ambitious and comprehensive, and will cover four key themes: Market Outlook, Asset Management Strategies, Industry Deep-Dives and the Future of Investment.

View the full agenda here

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Investing

Halliburton & Baker Hughes CEO’s join Reuters Events: Energy Transition 2020

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Reuters Events – today announced that CEO’s of two of the world’s leading energy service companies, Halliburton and Baker Hughes, will join the speaker faculties for their flagship Energy Transition Summit.

The event will explore the creation of the future energy ecosystem and offer companies, from across the asset spectrum, a definitive guide to their net-zero strategies. The alignment of the two biggest O&G global service companies, Halliburton and Baker Hughes, represents a significant step in the transition to low-carbon energy

More information on the Europe and North America editions can be found below. Registration for the LIVE stream is free.

Alongside their CEO speaker representation, Halliburton join as Platinum sponsors of the North American edition. Baker Hughes join as gold sponsors for the European edition of the flagship energy transition program.

The Energy Transition team report an industry leading speaker faculty for 2020, including:

  • Lorenzo Simonelli, Chairman & CEO, Baker Hughes
  • Jeff Miller, CEO & President, Jeff Miller
  • Tristan Grimbert, CEO, EDF Renewables
  • John Pettigrew, Chief Executive, National Grid
  • Pratima Rangarajan, CEO, OGCI Climate Investments
  • Alex Schneiter, CEO & President, Lundin Energy
  • Gretchen Watkins, President, Shell Oil Company
  • Calvin Butler Jr., CEO, Exelon Utilities
  • Francis Fannon, Assistant Secretary ERB, S. Department of State
  • David Lawler, Chairman & President, bp America
  • Andreas Schierenbeck, CEO, Uniper

More information on the Europe and North America editions can be found below. Registration for the LIVE stream is free.

Governance & Cooperation – Does the energy transition face a ‘governance deficit’? To understand how the energy transition will develop over the next decade, it is crucial to understand the driving governing forces behind it. Will the Green Deal provide the first domino, how can we ensure progress in the shadow of Aberdeen and ensure that we translate targets into action?

Financing Energy Transition – We must address the elephant in the room; who is going to pay for it all? An understanding of where the funds are likely to come from is key to staking claim to the infrastructural projects that will redefine the modern world in the 21st century.

New Energy Infrastructure – Low-carbon energy supply and consumption will need a radical overhaul of infrastructure. As well as revamping the old, we’ll need entirely new assets and new systems of energy delivery. It’s an unprecedented opportunity with estimated spending at $70 trillion over the next decade. Knowing which technologies are ready to be scaled first is the key to understanding opportunity

Business Model Innovation – Who will provide leadership through the age of transition and how do we want our future energy system to look? Speed and timing will be crucial if you are to stay on the right side of the transition. Join us in setting business led, evidence based, targets as industry drives towards net-zero

More information on the Europe and North America editions can be found below. Registration for the LIVE stream is free.

At Reuters Events, we’re committed to tackling the Energy Transition head on; to shed light on the defining issue of our time and help energy companies meet a uniquely difficult challenge. That is, to be both an energy company of today, and the energy companies of tomorrow. In a period that will be defined by uncertainty we can, together, lighten the way forward.” – Owen Rolt, Head of Energy Transition, Reuters Events

Contact

Owen Rolt

Head of Energy Transition

Reuters Events

UK: +44 (0) 207 375 7596

E: [email protected]

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Editorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.

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