BMT - Help investor clients to claim deductions correctly

Repairs and maintenance

Repairs relate to work completed to fix damage or deterioration of a property. Common examples of repairs include:

• Fixing part of a damaged fence
• Replacing part of the guttering or windows damaged in a storm

Maintenance is defined as any work completed to prevent deterioration to a property. Common examples include:

• Painting a rental property
• Oiling, brushing or cleaning something that is otherwise in good working condition
• Plumbing maintenance
• Servicing an air conditioner

Any expense incurred for repairs or maintenance of an investment property is deductible within the current financial year.

Capital improvements

Any improvement made to the original condition of an item is classified as capital improvements. The ATO allows capital improvements to be claimed by property investors as either capital works deductions or plant and equipment depreciation.

Capital works deductions include structural additions and renovations as well as fixed items which cannot be easily removed from the property.

Examples of depreciating plant and equipment items which could qualify for deductions when improved upon are carpeting, hot water systems, stoves, lights and light fittings. The deductions which can be claimed will depend on the individual effective life the ATO set for each individual asset.

How to maximise deductions

To ensure investor clients are able to claim the maximum deductions available, encouraging them to contact a Quantity Surveyor specialising in tax depreciation is key.

By working with an investor’s Accountant, a Quantity Surveyor such as BMT Tax Depreciation is able to produce a tax depreciation schedule outlining all capital works deductions and plant and equipment items considered to be capital improvements. This schedule will also outline all available deductions for the lifetime of the property (forty years), claimable when completing an annual tax return.

Owners who are planning any renovations to their investment property should also request a Quantity Surveyor to complete both a pre and post renovation depreciation schedule, as items removed during this process may also entitle the owner to additional deductions when the items are scrapped and written off.

If you have any clients who would like more information on claiming depreciation for any investment property, speak with one of the expert staff at BMT Tax Depreciation on 1300 728 726.

Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Chief Executive Officer of BMT Tax Depreciation.  Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.

It’s not what you say, it’s how you say it.

A message can be delivered in many ways, and it can also received and heard in an even broader variety of ways. Often we do not have control over the reaction of the other person, but we do have a very strong influence on how we deliver a message, having a strong influence on the outcome of the conversation.

Not  remembering this can lead to many unnecessary conflict, lead to extra stress and time taken for everyone involved. There have been many a communication breakdown, lost management, angry tenant and tribunal case that could have been avoided with a few small tweaks to the delivery of our communication and messages

. 

What can we do to better deliver our messages?

Remember they are not you

People have different ways of communicating, negotiating and different views on how situations be handled. If you are a sharp, short and to the point type person, remember that the listener may not be the same as you and may need a bit of fluff and fuzzy to come around to your way of thinking, or perhaps some more facts and details than you would need to make a decision. Consider who you are dealing with and how they may prefer to be dealt with and spoken to.

Have some tact

Consider the use of some tact and strategy, the positive, negative positive sandwich is a popular one, instead of

•  “You have not cleaned the property and will be charged if you don’t fix it”

Try

•     "Thank you so much for cleaning the property when you vacated and for returning it in good condition. There were a few minor items that were missed, we can sort that out for you easily at a minimal cost of $50 or you can return, and then as soon as we’ve resolved that I can ensure your bond is returned as fast as possible”

Select the right method

Trying to deliver a tricky message via email can be the easiest way to increase your chances of conflict. Consider if sending the message via email is really the best method and if it would be better received over the phone.

Negotiating bond claims, tricky tenancies, tribunals, new lease details, complaints and breaches should always be done via phone as priority, so you can better convey sincerity, support and tone (then just using email to confirm the conversation).

Don’t point the finger

Sometimes we can unintentionally seem like we are pointing the finger of blame. Avoid using the words “you” – use more “I”, we” and “let’s” to try to help the listener know that you’re going to work together to resolve it and that you’re not blaming them (even though we may want to sometimes – remember here the goal is to minimise conflict -  which leads to the next point..)

What’s it worth               

Consider what it is worth to stick to your stubborn “I am right” guns and consider how the conversation could develop if you kept an open mind and bigger picture thinking. Sure you may think the client is wrong now, however what is the cost of arguing with this person in the long run? Could it lead to them being more difficult in future, losing managements, losing future sales?  Is it better to save face than fight your point or jump on the defensive?

Acknowledge Frustration

If a client is frustrated and you do not acknowledge this and continue to deliver your message, it can create even more of a disconnect leading to more potential conflict. Acknowledge “I understand your frustrations” “That sounds really hard” “I am hearing you’re not very happy with the situation would that be accurate to say?” “I’m sorry to hear that”, before delivering your message.

Adjust your tone

How is your tone? Sometimes when we are rushing through our days we do not realise our own tone is short, sharp or may come across rude to the listener, even my family sometimes says I have “work  voice” on. Even the tone of a how you open a conversation and deliver a message is important in the success of the receiver hearing it in the best possible way. Next time you pick up the phone and consider how you can make your tone more upbeat (situation dependent of course), or after your next conversation consider, how was I perceived?

Actively Listen

Sometimes we are too busy thinking of solving the issue or developing our response that we are not actively listing to the client which means that when we respond, our delivery could be all wrong as we have not identified core issues, their tone or their frustrations. Remove distractions and truly listen to be able to deliver the best response.

Use verbal softeners

Use words like “likely”, “typically”, “perhaps”, “sometime”, “possibly” or “occasionally” with customers who might not respond well to categorical words like “always” or “never”.

Reconfirm to demonstrate understanding

A great tool to close off a conversation is to reconfirm the outcome or actions to the listener, they will walk away feeling more comfortable you have the situation under control. Try “So, confirming that you would like to know if the owner would consider installing new carpet and you would be prepared to sign another 12 month lease, and I’ll be seeking a response on this as soon as possible” vs “I’ll check and let you know”. 

Hermione Gardiner

Real+

The nightmares of a bad tenant

We hear about it all the time, the horrors of poor tenants and the troubles agents go through.

Where does it all start?

Sure – we’ve all heard about screening tenants, and the reasons to do it, but we’ve not yet figured out the best way to do so. Besides, we know how to “judge” a person’s character just from meeting them, they “click” with us and would surely be a good tenant. Unfortunately, as is the case with most con artists, we’ve become yet another victim of their act.

Are all applicants’ bad tenants?

Of course not – but you can consider yourself lucky if even one out of ten applicants are great. In many cases, you settle just to get the property leased or because the landlord can’t afford the costs of an empty property any longer. You did not consider that bad tenants move at least twice as often and apply to at least four times as many places as a good tenant.

Average case - after one year, the tenant moves out. They paid their rent on time (mostly) and now the property is empty for a month whilst you find a new tenant. There may also be a few repairs involved. You start the cycle all over again.

Bad case – the tenant has consistently made late payments or may have missed some altogether in effect breaching their lease. You are forced to give notice to evict your tenant – should be easy since they’re not paying for a service, right? Wrong.

The eviction nightmare

Once it gets to eviction stage, it’s pretty safe to say that the costs are already piling up. A vacant property is the landlord’s biggest expense. Worse than this is not getting rent and having a tenant still living in the property.

You give the tenant a valid 14 day termination notice for not paying rent and serve it to them in person. You pray and hope that the tenant will abide by this order (but as a property manager - we know better). The tenant fails to abide by the termination notice and you apply to the Civil & Administrative Tribunal for a possession order. The Tribunal finds that you only gave the tenants 13 days’ notice and you need to start the process again. Eventually, a possession order is granted and the tenants are given yet another date to move out of the property. The tenant still does not vacate and you have to obtain a warrant for possession from the Tribunal which can then be enforced by the police. At the end of this few month long struggle, the property is finally vacant and ready for lease again.

The results

Best case scenario you retain the property management and learn your lesson! Worst case scenario, the landlord takes his management with him and ruins your reputation causing even more financial loss.

Does this really happen?

In a recent survey conducted by National Tenancy Database, agents were asked what some of their more memorable bad tenant experiences were. The results are below:

Of 41 agents polled, only 7% were yet to have a bad tenant experience with over 54% having had tenants not paying rent as their worst issue. And what are the costs?

Of the 17 agents who responded, over 50% of agents indicated that a bad tenant has cost them over $1000 (and this may have happened more than once!)

What can you do to avoid these scenarios?

To make sure you’re finding the best tenants possible and keeping yourself covered, it’s now more important than ever to comprehensively screen your tenants. On top of your current screening process, National Tenancy Database are the only comprehensive tenancy screening checks which include blacklisted tenants AND:

• 1.     Identity verification - make sure the applicants documents are real!
• 2.     Visa validation – check the visa type and expiry date
• 3.     Public record check – ensure the tenant isn’t bankrupt or disqualified by ASIC
• 4.     Financial court records – see if the tenant has any financial judgements against them

This extra information could be the key to picking your next great tenant!

Part of the Veda Group, the National Tenancy Database has been working with real estate agents across Australia for years, to deliver reliable tenant checking and connection services with real time identity and document verification across more than 22 different databases.

When was your last survey?

Can you remember the last time that you surveyed your clients? Feedback is incredibly important in learning just how we are performing in the eyes of the consumer, especially now in the age of technology.

Usually when we mention the concept of sending a survey out to the clients, the property management team bristles fearful that they will be crucified either by the client or the boss depending on the results. To protect staff morale, it is crucial that the task of surveying is purely constructive to find out how the office is performing and areas that we can improve on.

Some areas which we can survey include:

·         Prospective Landlord’s – to find out why or why not we won or lost the listing. It may be any number of reasons including the team members involved or even price.

·         Current Landlord’s – this is a great opportunity to find out how they feel about their current service levels. It’s also a great opportunity to find out if they have other properties that your office could potentially be managing.

·         Current Tenants – it has been said time and time again, many Tenants are now also Landlord’s. This is a great chance to find out how they are finding the service and if they have properties that your office could be managing.

·         Prospective Tenants – this one is a perfect opportunity to find out how your leasing teams are performing and gain an indication of any potential investors that are coming through the open homes.

If you would like some examples of surveys contact the team at Real+ and we have some great templates of questions that can be asked. One of the easiest ways to collate responses from clients is to use a site such as survey monkey which will email out a link and collate the response for you.

One of the main points when going through the responses is to approach the team constructively with any criticism and treat it as a positive experience for the team with areas that may need improvement. 

Heidi Walkinshaw

Real +

Are You Afraid To Tell The Truth?

Sometimes we can be afraid to tell our landlords the whole honest truth during difficult situations like tough market, difficult tenants, damaged property, maintenance and improvements needed, rent arrears, or other escalated circumstances. Often we think we are protecting them, sometimes we may be afraid of blame - what if they think it’s our fault, what if they don’t listen, and then there can be a fear over - what if we lose the management?

The problem is that when we sugar coat things, pretend everything is fine, or omit some difficulties; we may actually be making our job harder in the long run.  The landlord may not then fully understand the gravity of the situation, as they have been protected and sheltered from the truth the whole way. This may make it difficult for them to take our advice or have trust in us.  We then get frustrated with them when they won’t listen.

The key when providing honest feedback is to not just dump the tough or negative news onto the owner – but to use the opportunity to show you have a plan in place.  Explain that you want to be transparent about the situation, for them not to be alarmed because their situation is common and we, as the experts, have a plan to overcome the obstacle or challenge.

If they are confident that we have it covered, and that you have just been honest in their best interest, benefits will be two fold.  As mentioned, it shows not only that you have the situation under control, but that on the other hand it actually substantiates to them the value of having a property manager in place.

The best relationships (whether with our landlords or the people in our personal lives), are built on communication concepts such as honesty, trust and transparency.  If you can be honest and transparent in a tactful way you will generate respect and trust with your landlord, and you will be surprised how much better prepared they are to listen to your advice and guidance.

The word tactful is important here, as we may need to think about the way we phrase things and how we and our tone, choice of words and message is received. Using a few simple phrases such as “Jenni, can I give you my honest opinion here?”, “Tom, I am going to be blunt and to the point, is that okay?” “Are you happy for me to give you honest feedback?” will help set a buffer for the message you are about to deliver and gain the respect of the client.

Hermione Gardiner

Real+ 

Co-ownership can help cut costs and increase deductions

As property prices continue to rise, many investors have considered the option to purchase an investment property with a friend, family member or business partner.

Co-owning property has the immediate benefit of increasing an investor’s purchasing power while reducing the burden of corresponding expenses. However, many investors who
co-own property and in particular those considering co-ownership are unaware that purchasing an investment property with another party can substantially increase the deductions that can be claimed due to the wear and tear of the items contained in the property.

To ensure that depreciation deductions are maximised, a specialist Quantity Surveyor should be consulted to provide a depreciation schedule based on each owner’s percentage of ownership for each asset. Often investors do not seek adequate professional advice and this can lead to depreciation deductions being claimed incorrectly and in some cases not claimed at all.

It’s not uncommon for co-owners to make the mistake of calculating depreciation first and then splitting the deductions based on the ownership percentage. However, legislation allows co-owners to split an asset’s value by ownership percentage first, potentially qualifying them for higher depreciation deductions. As a result co-owners are able to increase their deductions substantially by writing off plant and equipment items far sooner using methods such as low-value pooling and immediate write-off.

Low-value pooling

Low-value pooling is a method of depreciation which allows an investor with an ownership interest in an asset of less than $1,000 in value to claim deductions at an accelerated rate of 18.75 per cent in the year of purchase and 37.5 per cent each year afterwards. As each investor’s ownership interest may qualify for the low-value pool, co-ownership expands the number of items that can be claimed at this higher rate of depreciation.

Immediate write-off

Legislation allows property investor’s to claim an immediate write-off for assets with an opening value of $300 or less. In a situation where ownership is split between one or more parties, the rule allows investors to claim an immediate write-off to items where an owner’s interest in the asset is below $300.

Case study

Let’s take a look at an example of how the immediate write-off and low-value pooling rules apply to some of the depreciable assets generally found in the kitchen of every investment property.

The table below demonstrates the impact that a split depreciation schedule will have on qualifying the owners to increased deductions sooner when compared to a situation where deductions are claimed without performing the split allocation first.

 By obtaining a split depreciation schedule, the first year claim for each owner will improve from $365 to $617 and the second year claim will improve from $343 to $519.

The freestanding gas and electric cooker purchased for $1,862 and the dishwasher purchased for $1,540 are able to be depreciated using the low-value pool, greatly increasing the value of deductions.

Using a split schedule also allows the owners to claim an immediate write-off for the range hood, as the 50 per cent ownership percentage split will further reduce the opening cost of this asset to $298 for each owner (less than the $300 threshold set by the ATO).

The increase in deductions that a split depreciation schedule provides are made even more significant when all of the assets typically found in an investment property are included.

A split depreciation schedule is available in any scenario where an investment property is co-owned, whether it is for a husband and wife, friends or business partners.

The deductions using a split schedule can also be calculated based on any number of investors and the percentage of ownership each individual has in the assets, whether it’s for two owners at 60:40 or 1:99, or even four owners at 70:15:10:5.

For owners with lower percentages of ownership, the low-value pool and immediate write-off will apply to more assets, increasing deductions earlier. This is particularly important for investors to understand when entering into a co-ownership agreement and at the time of purchase. For example, a husband and wife might choose to align their percentage of ownership so that the higher income earner holds the greater portion of interest in the assets and therefore that person will be able to claim a higher portion of the deductions at tax time. 

It’s important to note however that once an investor has requested a split depreciation schedule, they cannot change their interest in the assets within the property down the track. Depreciation must always be claimed at the percentage of ownership split that is outlined on the original schedule from settlement.

Investors who would like more information about obtaining a split depreciation schedule should speak to a specialist Quantity Surveyor for advice. They should also speak with their Accountant and Financial Advisor before entering into any co-ownership agreement. 

Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Chief Executive Officer of BMT Tax Depreciation.

Bradley joined BMT in 1998 and as such he has substantial knowledge about property investment supported by expertise in property depreciation and the construction industry.
Bradley is a regular keynote speaker and presenter covering depreciation services on television, radio, at conferences and exhibitions Australia-wide. Please contact 1300 728 726 or visit www.bmtqs.com.au

How much is office gossip costing your business?

In any office setting we are familiar with the different personalities that arrive at the table and the one that can often cause some of the most damage to your culture is that of the office

gossip.  It’s important when you are trying to build an office culture that you stamp out any office negative gossip and fast.

Negative gossip can create issues relating to loss of productivity, morale, lack of employee engagement and can contribute toward turnover. In the extreme it can manifest into something more malicious and create liability with workplace bullying.

So how do we combat the “negative Nancy” in the workplace, maintain a great culture and most importantly build a strong team?

Address the person at the source of the concern. This is best to be carried out in a location where the conversation cannot be overhead by other ears and in a neutral location where all parties will feel safe. This may mean going out and grabbing a quick coffee. The purpose of the meeting is to try and assist the person in understanding the impact of their behaviour and the repercussions should it continue.

It may be that they are not even aware that their behaviour is negative. Studies have shown that the more we conceptualise negative thoughts and behaviours, the more that it materialises into the way in which we perceive and act in the world around us.

It is also important to address the team on a separate occasion as part of another meeting. This may be your weekly or monthly meeting and explain the differences between positive and negative gossip and the ramifications for the individual should the negative continue.  It is important to ensure that this message is not sent via an email as the message is not as likely to be received or received well.

Encourage positive gossip such as sharing positive stories, achievements and success as they can be great in building rapport amongst team members and build a culture where people want to work.

There is the old saying that the “fish rots from the head”. Teams will look to their leader as a model for behaviour. Ensure that your leader is a strong and positive personality who has the ability to stamp out the first sight of negativity and get the positive thought train back on track.

Training is also a great tool for your team leaders to learn the art of dealing with conflict and managing the office negative gossip to ensure that the fire doesn’t have a chance to spread and the team can get back to the important task of improving the growth and profitability of the business.

Heidi Walkinshaw 

Real+