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How will changes to depreciation deductions affect you?

Do you own, or intend to own, a residential investment property earning rental income? New measures affecting Australian residential property have now become law including changes which may mean losing the benefit of depreciation deductions.  But do not despair, for those buying off-the-plan the benefits are still there. 

What has changed?

In the past the decline in value of a rental properties plan and equipment (e.g. carpets, ovens, dishwashers, heaters, blinds, and washing machines) could be claimed as a deduction in the landlord’s tax return, reducing their total taxable income.

From 1 July 2017 tax deductions for depreciation of residential property fixtures will only be allowable for expenses actually outlaid by an investor.  The change will apply to landlords who purchase a property after 9 May 2017.

So what happens to your depreciation claims if you are planning to purchase a residential investment property now?  It will depend on the type of residential property you purchase and what plant and equipment you purchase for that property.

For example, you may purchase an existing older home in good condition however the hot water system needs replacing after a few months, so you pay for a new system to be installed before renting the property to tenants.  In this case, you will be allowed to claim depreciation deductions for the cost of the new hot water system over its useful life in your tax return. However, you will not be able to claim depreciation deductions for all of the existing plant and equipment that came with the house when you bought it.  This means that you will have less deductions to report in your tax return, potentially resulting in higher taxable income and therefore higher tax to pay (or a smaller refund) than property investors have enjoyed in the past.

The good news?

Not all is lost.  Purchasing new property may still be attractive to investors wishing to maximise deductions.  If you purchase a brand new property, off-the-plan for example, you are purchasing the new property along with the new plant and equipment so will be allowed to claim depreciation deductions on these new items in your tax return over their useful life.  This will therefore reduce your taxable income particularly in the first few years when the depreciation deductions are greatest.  This can be very helpful for a new landlord’s cash flow in the early years of ownership.  In other words, to get the best tax result possible it may well be best to buy a brand new property!

Owners of existing residential rental properties with plant and equipment acquired before 9 May 2017 and used in a residence that has been a rental property on or before 30 June 2017 will still be able to claim a depreciation deduction as normal per the old rules.

How can we help?

Please do not hesitate to contact a member of The Hopkins Group team to discuss any of the abovementioned issues and what you may be able to do under these measures to assist in achieving your individual financial goals. To view our currently recommended properties, please click here.

Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.

Give me time! A working mother’s lament

The struggle is real for Miss Six who is too tired to wake up this morning, despite not being tired enough to go to bed when asked last night.

Apparently her legs are too tired to get her out of bed.

What does that even mean? It’s too early for me to even deal with this level of ridiculousness.

After some coaxing, darling daughter’s legs awaken to walk her to my next challenge; the dreaded breakfast scene.

After five attempts to ask the Netflix or iPad transfixed zombie (don’t judge) what she wants for breakfast, I finally hear “Weet-Bix”.

Yesssss! We finally have an answer.

But don’t get too excited and pop the champagne for a celebratory Mimosa; oh no, the battle wages on.

As I take a champion’s breakfast to her highness, she declares she wanted peanut butter on toast.

Because didn’t you know, dear reader, that “peanut butter and toast” and “Weet-Bix” sound identical and obviously I’m a fool for not noticing this earlier?

A dilemma.

Do I let my fury roar and scream “you eat what you’ve got or you don’t eat” or do I keep the peace and enjoy the quiet submission affords?

Peace and quiet wins for the mother who needs to get ready for work.

As I get ready, I check on the child to see if she’s eating.

The dog has made off with her toast as she sits unaware that breakfast was even put in front of her.

Quiet does not prevail in this moment. I’m not ashamed to admit I shouted.

“Why haven’t you eaten your breakfast and why does the dog have a peanut butter grin on his face?”

Daughter looks to me as if I’ve lost my mind, before requesting  a milkshake and an update on the status of her Weet-Bix.

I dump the bowl of cereal in front of the self-styled queen.

As I continue my transformation from mum in PJs to career girl about to go to work, I shout out for her majesty to start brushing her own hair.

The curse of tired limbs returns to rear its ugly head.

“No, Mum! I want you to do it. My arms are too tired”

“You’re a big girl now, help me out!” I beg.

I repeat the cry without reply only to discover the tired leg royal is out jumping on the trampoline.

You’ve got to be kidding me!

I get her back in the house and get her uniform ready for her to put on while I start getting her lunch ready.

After this morning’s breakfast fiasco, she has no choice in her lunchbox filling.

I hear laughter gaining volume in the hall.

I look over to see my child running around in her birthday suit; the dog has seized this moment as playtime and grabbed her school uniform in his mouth.

I take a breath and ask as calmly as I can . . .

“Please come and get your clothes on. We have to leave in ten minutes, and so help me, if you’re not ready I will take you as you are!”

This is the moment I realise – I have turned in to my mother.

The uniform flies on and the hair is done (many tantrums, tears and removed knots later).

At last I think we’re ready to go, but oh no – something’s been forgotten.

A toy is needed.

Honestly, I give up!

We spend the next five minutes searching for the best toy she can take, and then I buckle her in the car before she can change her mind.

I’m not sure I know what normal feels like anymore, but what I do know for sure is that this morning’s drama is not unique to my household; it’s one that I’m sure is repeated in the homes of young families the world over.

It’s pretty much a fact of life that parents are time poor. Working parents most of all.

As I wave goodbye to my dear child, I find myself wondering if there is a way to get some control back in my life and let someone else do some of my thinking for me.

What if someone could keep track of and pay bills to be paid for my investment property, help me set up and monitor a financial strategy, or help me keep track of where my money goes? What if someone could help me pay off my house sooner, or get more out of my tax return?

The Hopkins Group can.

You can ask them how here.

Where is your wealth tied up?

Is all your wealth tied up in your family home leading up to retirement?

As unusual as this question seems, it’s not uncommon to sit with clients who would answer “yes”, and they’re usually from one of four specific groups…

  • Baby Boomers i.e. generations who haven’t benefited from a lifetime of superannuation guarantee contributions
  • Self-employed
  • Home-duties
  • Divorcees

During the last Federal Budget, the Treasurer floated the idea of allowing specific benefits to those who sold the family home in the lead up to retirement, thereby freeing up some of their wealth. The benefit could afford them a potential $300,000 boost to their superannuation balance – over and above the existing non-concessional contributions limits.

In December 2017, Mr Morrison came good on his word and specific legislation known as the Downsizer Superannuation Contribution legislation was passed. At a time when we already had too much jargon in our industry, we welcomed a new acronym and financial and taxation strategy to deploy – the DSC.

So am I eligible for this benefit?

Eligibility for making a DSC is not affected by a person’s total superannuation balance or whether they are working. It will come into play on 1 July 2018 and will be governed only by the following seven conditions:

1. They must be 65 or older at the time the contribution is made
2. The contribution must be in respect of the proceeds of the sale of a qualifying dwelling in Australia
3. A 10-year ownership condition must be met
4. Any gain or loss on the disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part
5. The contribution must be made within 90 days of the disposal of the dwelling, or such longer time as the commissioner allows
6. The person must choose to treat the contribution as a downsizer contribution, and notify their superannuation provider, in the approved form, of this choice at the time the contribution is made
7. The person cannot have had DSCs in relation to an earlier disposal of a main residence

For a property to be classed as a qualified dwelling in Australia, it must have been a fixed structure. Proceeds from the sale of houseboats, caravans, and other forms of mobile homes, even if they were a main residence, do not qualify for a DSC.

The 10-year ownership is quite broad, for example:

  • One member of a couple may only be on the title when it was sold
  • A property is used for both business and principle place of residence
  • Less than 10 year ownership as a result of having had a former family home compulsorily acquired
  • A person will be eligible to make a DSC in the following circumstances:
  • If the property was owned by one member of a couple for at least 10 years, it does not matter how long a couple were married
  • If the spouse who owned the property for longer than 10 years dies, the surviving spouse is eligible to make a DSC, even if they were married for less than 10 years

If you are considering downsizing your family home as part of your retirement strategy, we encourage you to contact our office on 1300 726 082, make an appointment and discuss your personal circumstances with one of our financial advisers.

Legislation is often complex to navigate and if interpreted incorrectly, or if the process is not completed in its entirety, you may end up worse off – something we can help you avoid.


Tax on vacant residential property

As part of a string of new housing initiatives announced in last year’s Victorian State Budget, a new Vacant Residential Property Tax has taken effect from 1 January 2018.

The tax – charged at a rate of 1% of a property’s capital improved value of taxable land – has been designed with the intention of reducing the high number of houses and apartments being left vacant in the inner and middle ring of Melbourne, by owners who have been previously happy to leave their properties empty and accumulate capital gains instead.

It is hoped by the government that this tax will trigger an increase in housing supply across the state, and release pressure on house and rental prices by encouraging landlords to offer their vacant properties for rent or sale. It is predicted to generate $80 million in revenue for the state over four years.

Who will have to pay this new tax?

The Vacant Residential Property Tax will only apply to the owner of a property that is unoccupied for more than six months within a calendar year. This six months does not need to be continuous.

This tax is self-reporting, meaning that owners of vacant residential property will be required to notify the State Revenue Office (SRO) of the extended vacancy (by 15 January each year).

Whilst the tax applies from 1 January 2018, it will be based on use and occupation in the preceding year (ie. an owner’s tax liability for 2018 will be based on use and occupation in 2017). Owners who miss the deadline are encouraged to notify the SRO about vacant property as soon as possible. Late disclosures are treated more favourably than if vacant properties are identified as the result of an investigation.

Are there are exemptions?

There are a number of practical exemptions applied to this tax – recognising legitimate reasons as to why a property may be vacant. Aside from the existing exemptions in place for land tax purposes, new exemptions include:

  • holiday homes
  • city apartments/homes/units used for work purposes
  • property transfers during the preceding year
  • new residential properties

Does this tax apply to all properties?

No; the tax only applies to vacant residential properties located in Melbourne’s inner and middle suburbs. Properties outside these suburbs are not subject to the tax.

The tax applies to properties in these local council areas:

  • Banyule
  • Bayside
  • Boroondara
  • Darebin
  • Glen Eira
  • Hobsons Bay
  • Manningham
  • Maribyrnong
  • Melbourne
  • Monash
  • Moonee Valley
  • Moreland
  • Port Phillip
  • Stonnington
  • Yarra
  • Whitehorse

What does this mean for me?

For many of our clients, this tax will not apply as we recommend against keeping your investment property vacant. If your property is managed by The Hopkins Group, we pride ourselves on minimising vacancy and ensuring your property is always tenanted.

However, if you do own a property that you are keeping vacant and is not exempt from this tax, please contact your adviser to discuss the implications of this in the context of your broader financial strategy.

Where can I learn more?

The SRO provides a comprehensive summary of the tax exemptions and implications on its website. Alternatively, if you would like to discuss the leasing of your vacant property, contact our property management team today.

General Advice Warning: This blog may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.

Talk your way to more savings

Every year, about a week or two into January, I will get a note from my car insurer letting me know my policy is up for renewal. Without fail, this reminder usually comes with a rate hike.

This isn’t a shock – it’s a yearly occurrence after all – and bills and price rises are a pretty standard part of life as you become a “grown up”.

But that doesn’t mean you can’t challenge the status quo every once in a while.

So each year I take up arms and contact my insurer to challenge the price rise they give me. And every year so far, it’s a battle I’ve won.

It isn’t difficult to do – all you have to do is ask. So this year, I challenge you to do the same – it’s time to channel your inner negotiator and save some money!

How do you ask for a better rate?

“Hi there! I’ve just received a letter about my car insurance renewal and I’ve noticed that the price is going up quite a bit. Just wondering if that’s the best rate that I’m entitled to?”

That has been my opening line with my car insurance company for the last few years and I’ve saved up to $9 a month with it.

Surely there’s more to it than that – what else should I know?

Okay, I concede – there is a little more that goes on before I make contact.

The first thing you’ll want to do is work out what you’re willing to pay (acknowledging that whatever you end up paying going forward, after the discount you negotiate, may still be more than what you were paying before the price rise). Once you have this figure in mind, be prepared to negotiate below that figure – you want room to move.

To help you better understand what you’re negotiating, shop around online and see what other providers are offering. If you see a better rate, you have two options; switch providers (but be sure to consider of any terms and conditions of your existing relationship/contract in case there are fees associated with an early termination), or use the better rate as a bargaining chip with your current supplier.

Don’t forget to check out your current supplier’s website as well – you may notice a deal they’re offering new customers or a new package that wasn’t available when you first signed up. I find the line “I see you’re offering x deal to new customers. Can I get in on that as a longstanding, loyal customer?” works well in this context.

Once you have your research done and bargaining chips in hand, it really comes down to making contact and asking for what you want.

Do I have to pick up the phone to get what I want?

Not always.

I’m a classic millennial. If I can avoid talking on the phone with someone, I will. I’m an online chat kind of girl. For me, it isn’t necessarily a time thing – really, it takes just as long to pick up a phone to type a conversation with someone – it’s a small talk thing.

I don’t feel as weird avoiding small talk and getting to the point in a typed conversation. I can be cold, calculating and direct without worrying about how I sound. It’s the perfect place to be the tough negotiator, particularly if you’re not used to those kinds of conversations. You don’t need to get agitated by what someone’s voice sounds like or the tone they use or listen to monotonous hold music. If you need to repeat yourself, you can copy and paste or the next agent can instantly look up what was said in the conversation with the previous one; it ensures you’ll have a written record of what was discussed to draw on when you need it.

That said, online chat facilities aren’t always available, sometimes aren’t run by the department that can help you (sales vs support) or, as is often the case, they’re run by chat bots that may not be able to escalate your request appropriately. That’s when picking up the phone is a necessity (and it’s what I do with my insurance company each year).

At the crux, it’s about what you’re comfortable with. Maybe small talk and building rapport over voice is important in your negotiation tool kit – in that case, a phone call is your best friend. If you’re not confident on the phone, and your voice betrays that, perhaps an online chat facility is for you.

But whatever you do, try to play nice. Remember you’re dealing with people and kindness goes a long way. If you’re not getting your way, ask to speak to someone else before tensions flare and you lose your cool.

What are some of the things you can negotiate your value on?

The sky’s the limit.

So far I’ve successfully negotiated:

  • A reduction in my car insurance
  • A waiver on the monthly account keeping fee charged by my bank (and received a refund for previous fees charged)
  • More data for the same price on my phone plan
  • A 40% reduction in a monthly software subscription that I’ve had for years
  • A lower interest rate on my car loan

If you’re being charged for something, it’s in your best interest to make sure you’re getting the most bang for your buck. And if you do win the battle of fees with your provider why not consider contributing the money you’ve saved into your savings account? If you weren’t going to miss the money paying someone else, you won’t miss not spending it.

What fees are you being charged that can be challenged? Is there a service that you can get more out of, for the same price?

If you need help in reviewing your finances, or perhaps finding a better interest rate on your loan, please contact one of our advisers today!

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The Hopkins Group

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