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Avoiding Tension in Tenancy

28/10/2021

Unfortunately, it’s well known that some tenancies can be full of drama with strained relationships between the landlord & the tenant, which means also the agent if there’s one in place.

There can be so many reasons for disputes to arise that sometimes every conversation or email can feel like traversing a minefield. I don’t actually have any minefield experience but far out do I know how quickly a tenancy can go sour.

It really doesn’t need to be this way though. I think the tone needs to be set from the beginning and along the way, it’s about getting people’s expectations to meet reality, because realistically- we can’t always get what we want. But you can get what you need.

Is that a song?

Anyway, across these last 18 months of tense times it’s become very noticeable in the tenancy space that not everyone is thrilled at how things are going. Landlords in Sydney are dealing with a rental market most have not experienced before in their time. Whilst many have been through the hail storms, floods, etc, for the most part, landlords have never had to discount rent or increase their capital expenditure, all the while until now having little government assistance and their outgoing costs stand firm. Of course, this has seen frustration rise.

On the other end of the scale, tenants have needed financial assistance in many cases or seen the need to move house, many have not been able to access government assistance or assistance from their landlords despite media reports of so much being available & misconceptions about landlords being able to provide tenants help. It hasn’t been that straightforward, so we have frustration on both ends.

I have some experience in “trying” to keep things light, helpful & really real between landlords & tenants so here are some of my tips on how to “try” to get things running smoothly from the get-go.

Why the focus on this topic?

Well firstly because of humanity & it’s just nice to be nice, but also, why wouldn’t you want some kind of mutually beneficial relationship to be respectful & courteous.

Also, tenants who are happy respect the lease, the property, and the landlord who respects them. Landlords respect when rent is paid on time and their property is being well cared for because it gives peace of mind- which is priceless.

Legalities

Get them right from the outset.

There’s a Lease, it outlines everyone’s contractual abilities, what they are supposed to do and when. Everyone has the opportunity to read it, or be educated about the lease along the way. Aside from the lease, there are other legalities to cover, an agent who knows the Act & Regulations will show you all the way.

Once you have agreed to any specifics, terms etc lay those out in writing & be sure you are happy to live with the terms you’ve agreed to, or risk being regretful!

Communication

Two-Way Communication is everything or a party in between who can pass it on and make recommendations / deliver unwanted news / negotiate etc.

But communication is key, we need tenants to report issues, we need them to let us know when things are done or not done. Tenants remind us sometimes of loose ends or simply what’s going on in the street or building that can impact the property.

So yeah, we need to be available and responsive to all of that. Back to the legalities, it’s crucial that important conversations, actions, or agreements are laid out in writing. For this, you need to be cover multiple forms of communication between tenants, agents, and the landlord. Email, Text, letters, phone calls, and file notes are necessary, sometimes for the most mundane of things but still! Record keeping is your best friend so you know where everyone stands.

Mutual Respect

A tenant should respect the landlord’s property and similarly, the landlord should respect the tenant’s home. Anyone can be sensitive to the security & sense of belonging they have in a home. Whilst the property is usually an investment property so emotion doesn’t come into place, some landlords can share that emotional attachment, but it’s more likely the tenant’s attachment will be there.

So, whilst a landlord should see investing in property as an investment, we can’t take away the human factor involved across the “transaction”, and that’s something we always need to consider.

Mutual respect is as simple as following the guidelines that the lease provides on all sides, but just factoring in your tenant or landlord into all decisions made. How will this decision impact the tenant or the landlord? It’s only fair that this works both ways and isn’t always a “me” decision. Respect boundaries, the need for everyone to play their part, be cordial, and don’t overstep.

Keep it Real

By that I mean, always be open to discussion & negotiation. Tenants might throw a huge party & owners might not get around giving instructions for repairs straight away.
Set your expectations to realistic and I guess it’s helpful when everyone has realistic ones and exercise some patience.

For a landlord, you should expect that the property is going to be “lived in”. Tenants, you’ll have to expect the need for inspections & instructions a lot of the time.

Whatever wrongdoings may occur in a tenancy, sometimes it’s best to be clear in addressing that issue, forgive & carry on. We’re only human after all.

Build Rapport

This one may be for landlords more so, or something they should ensure their agent takes an interest in doing. For the human touch, it’s nice to have some kind of relationship across a tenancy. One where everyone is approachable and the idea of reporting a repair isn’t anxiety-inducing for a tenant.

Attending to Maintenance / Requests

It’s an insurance & lease Biggy either way but it’s also the biggest source of issues in a tenancy. If you’re a landlord then this can be where you risk losing tenants, and while you can always find new tenants, that always comes at a cost.

So while you should not be throwing money at repairs & maintenance senselessly, you and your agent should have a plan on how to address something that’s arisen and then keep the tenant informed as it progresses. Even delays or setbacks should be communicated because no communication becomes the source of frustration.

 

As you can see, all the above is linked, it’s not anyone thing that you need to do to have a smooth-running tenancy but it’s about consistency, responsiveness, and sticking to your obligations- that’s for all parties involved! But in my experience, landlords, your best bet is to take care of your tenants and they will take care of your property.

Antonio Mesiti is the Principal & Property Manager at The Management Agency, a local Property Management specialist offering a one on one service for his Property Investor clients.

For more information visit; https://themanagementagency.com.au/about/

Leases; To Renew or Not to Renew?

21/7/2021

Back in March 2020, I wrote about our New Leases in NSW following some changes to the Residential Tenancies Act & Regulations. Great timing huh, dealing with a pandemic and its impacts and making sweeping changes to how landlords and tenants view a Lease Agreement.

So it’s been a while now that these changes have been in but I still get calls and questions arising out of the blog I wrote about the changes. Titled To Renew or not to renew that blog can be read here.

As a quick summary though it goes through the Pros & Cons of this new legislation, and the potential impacts it might have (and has had) on owners and tenants, and the certainty that Fixed Term lease agreements once gave them that is now lacking. But I’ll summarise what the changes have done even further than that;

For Owners:

  • Resigning / Renewing a Lease to a New Fixed-term has little to no importance now because of how easy a lease can be broken
  • Owners see Periodic / Expired Agreements as more of an advantage as at least they are given 3 weeks’ notice of a tenant vacating. They also have not had to pay for a renewal to be signed.

 

For Tenants: 

  • Easy to Break a Lease but when they’d like some certainty of a Fixed Term Lease, they lose out with fewer owners offering them because of the reasons above.

 

So for Landlords, the options are;

    1. Not renew a Lease and have continuing agreement where tenants provide you with 3 weeks’ notice to vacate at any point

Or

2. Renew a Lease where tenants can break the agreement by paying a set break fee as outlined in my blog

So…

What has happened since these changes have come into place is tenants simply upping and leaving when they’ve found another property after a landlord has gone through the effort of finding them and the compliance measures that need to be fulfilled just before they get keys. The main concern for landlords is that you go through all of this and can now end up with a vacant property at any time. Realistically, the Break Fee isn’t covering the costs of reletting, vacancy in between tenancies, and so on.

Sadly now some owners only offer 6-month leases and no renewals, so whilst it was being heavily advocated that there be this leniency to Break Lease clauses when these reviews were being considered, who are the real losers here?  Long-term tenants seeking some certainty, or Landlords thinking that maybe investing in Property looks less attractive.

Speaking to the Real Estate Institute of NSW though, they’re sure that these terms are set to remain in place so like most things, pandemic included, we have to learn to live with them.

Am I being too dramatic about it all, too negative? Let me know in the comments below.

Antonio Mesiti is the Principal & Property Manager at The Management Agency, a local Property Management specialist offering a one on one service for his Property Investor clients.

For more information visit; https://themanagementagency.com.au/about/

 

 

Insurance that doesn’t Pay

29/4/2021

I’m like a broken record when it comes to Insurance, specifically Landlord Insurance.

I have written about it here on my blog, my #tuesdaytips on Social Media are constantly covering this topic as does my Client Quarterly Newsletter (Clients only, soz).

So why am I here again, out of pure frustration really?

Realistically, Property Managers aren’t inundated with work related to processing Insurance claims. It’s a good thing that claims are few and far between but it just seems that with some insurers everything is a battle.

Since COVID and the placement of the moratorium on evictions, halting landlords from evicting COVID Impacted tenants we know that insurance claims for Rent Arrears sky rocketed. Following that Insurers stopped offering new policies & have since increased premiums… I think we all understood why and the business case behind these decisions.

“Just because you have Building Insurance or other policies with an insurer, does not mean that they will be the best fit for your landlord’s Insurance”

My gripe though is more of a general one and while it might not be news to many it’s a warning to some about insurers exploring every possible avenue in which to avoid approving and paying a claim.

So that my rant isn’t an extended one here are some examples that come to mind as to why insurers have tried not to pay out legitimate claims;

Claim 1:

Rent Arrears following the Death of a Tenant.

The Period was the time between discovery and the family getting possession of the property back to the landlords

Issue:

Insurance did not want to pay the claim because we had not followed steps to chase the arrears or terminate the tenant for Rent Arrears.

We knew the tenant was deceased and terminated the tenancy under Death of Sole Tenant as per the normal processes. Insurance was not factoring in the moratorium or the fact that sending arrears notices was not necessary or very empathetic to the family.

Result:

Post some dispute resolution proceedings the claim was paid.

 

Claim 2:

Tenant Damage.
Tenant had been preparing food on the benchtops, leaving cut marks across marble.

Issue:

Insurance coverage did not cover damage that was accidental, Malicious only.

Result:

Insurance did not cover for what they called “Bad housekeeping”

 

Claim 3:

Rent Arrears COVID Impacted Tenancy

COVID Impacted Tenancy, the landlord had provided rent relief as per the NSW Govt Instructions however some months into providing relief the rent fell further and further behind. It was mutually agreed that the tenancy should come to an end. Arrears were left owing and a payment plan was not able to be negotiated.

Issue:

The Insurance policy only allows coverage of 2 weeks rent if the Lease was a Periodic Agreement, also known as a Continuing agreement.

An extremely outdated policy term that this insurer has had in place for many years but is being changed 1 month after our claim has been made.

Our argument here is that the majority of tenancies are periodic agreements after the initial fixed term has expired and more importantly, landlords and tenants do not have to renew a fixed term agreement. It’s like saying to a tenant at the end of the lease, you need to move if you don’t lock in for another year.

Result:

Pending as it goes through the Dispute Resolution process but it isn’t looking good!

 

It’s important to note that none of these insurers are specialist landlords’ insurers and more likely the companies you would use to insure your car with. Landlords should always stick to insurers that understand Residential Tenancy laws, the legalities and the limitations!

While I won’t name & shame and I can’t specifically recommend insurers It’s important that you, as a Landlord read the long-winded and PDS and ask questions.

THE PDS & Why you need to read it!

The PDS explains what actions can void your policy, how to make a claim and most important outlines what is covered and what isn’t covered. I’ve read a couple lately and while they are long-winded they make for an interesting read. If you’re going to buy a policy from any insurer, find their PDS and read it first.

I would really look at all insurers and just because you have Building Insurance or other policies with an insurer, does not mean that they will be the best fit for your landlord’s Insurance.

A policy that sounds good and is a fair price is what we look for but what they’re like when you go to claim is most important and there is plenty of info and reviews online about that.

Antonio Mesiti is the Principal & Property Manager at The Management Agency, a local Property Management specialist offering a one on one service for his Property Investor clients.

For more information visit; https://themanagementagency.com.au/about/

Need To Know – Legislation Update

24/02/2021

I recently took over the management of a property and the lease was invalid for multiple reasons. For a start- the name listed for the landlord on the lease said “Contact Agent” and it only got worse from there. Landlords & Tenants need a lease that is valid, to begin with (obviously) and gives everyone some certainty surrounding their agreement.

2020 was a lot to take in, so to digest some of the legislation changes & recent updates so here I’ll briefly summarise what you all need-to-know!

NCAT Jurisdiction and why Leases were updated in Sept 2020

NCAT, short for NSW Civil & Administrative Tribunal, is the go-to Tribunal for disputes in Tenancy situations. NCAT can make enforceable orders on parties to resolve issues ranging from arrears to possession to damage claims.A little-known fact is that in some cases NCAT may refer the matter to Local or District courts if the landlord is not a resident of NSW. There’s quite a bit of reading on that matter here.Leases were just updated in Sept 2020 where landlords have to disclose their state or country of residence if it is not NSW. This may help NCAT filter through and decide on what matters they can and can’t hear even though they may have to be the first port of call.

The lease Agreement must have this specific info

Leases must now have tenants’ email addresses listed in order for tenants to give consent to receiving any notices or correspondence via email. Leases must also list 1 form of contact for a landlord, either a phone number or email address.

ID Requirements for Landlords

Before leasing or taking on the management of a Property, Property Managers must fulfil an ID Check for landlords to confirm their identity and their ownership of the Property. This has been in place where enlisting an agent to sell a property for some time but is new to Property Management

Information Statements for Landlords & Tenants

There is a new Information Statement each for Landlords and Tenants. Tenants have to be provided a copy on or before signing their lease. For Landlords, they’re required to read and acknowledge having read the statement before a lease is signed, an important step.

Material Fact Disclosure

Material Fact has been around for some time now but the facts that need to be disclosed do get reworked and reworded. For instance, Landlords and therefore agents, need to disclose to tenants if they are aware of any major rectification or works scheduled in a Strata Complex that would impact tenants during their lease. Essentially, a material fact is about sharing the information that you know whilst also protecting landlords if you’re not in the know.

Extension of the Moratorium on Evictions- extended & in place to 26 March 2021

Aside from a stop on COVID-19 Impacted tenant terminations, the moratorium also keeps in place extended notice periods to 90 Days’ notice for other forms of Terminations notices, such as for the End of Fixed Term & Breaches of Agreement.

The Management Agency wishes you all the best for 2021, I know it’s flying by already and we’re working away in what is already turning out to be a busy rental market with a lot of leasing activity already well underway which is already an improvement on 2020.

Thank you for your support, following, and reading!

Antonio Mesiti is the Principal & Property Manager at The Management Agency, a local Property Management specialist offering a one on one and end to end service for his Property Investor clients. For more information visit; https://themanagementagency.com.au/about/

For what it’s worth?

14/1/2021

Happy 2021! January has been a busy one already and I really didn’t think I’d get to post here until next month but I thought it might be good to dispel a small myth about Property Management only businesses.

This only just came to mind while writing about this for issue no. 7 of my Client Quarterly newsletter (TMA Clients Only Sorry), reminding my clients to ask if they need up to date & free market appraisals of their properties.

So here goes, a quick blogs’ a good blog!

How does a landlord stay up to date with their property value with no Sales Agents on my team?

This hasn’t really come up as an issue or a concern of potential clients so this is more of an FYI for any of my readers or those curious to know.

Well, it’s simple really, I work with several Sales Agents in Surry Hills, Redfern, Darlinghurst that cover the areas that I work across who are always willing and at the ready to provide any of my clients with an up-to-date market opinion of their property. This usually involves a quick physical inspection of the property and for something broader a quick online appraisal can be carried out; it all depends on my client’s needs.

What my clients do like, sorry salespeople, is that unless they approve of being contacted directly then all of their information remains private & confidential.

So, there you have it, a very practical way of ensuring my clients have access to knowledge across their investment and at the same time have that provided to them with minimal effort on their part.


Antonio Mesiti is the Principal & Property Manager at The Management Agency, a local Property Management specialist offering a one on one and end to end service for his Property Investor clients. For more information visit; https://themanagementagency.com.au/about/

Renting with Pets

21/10/2020

I’ve previously written here about Animals in Rental Properties, but through the course of 2020, we’ve seen several highly covered Tribunal and court cases battling for pet owners to have the right to keep pets in apartments.

Recently we’ve seen COVID-19 effectively increase the number of tenants seeking approval to keep pets in rental properties and whilst there are fewer obstacles getting pets approved in some properties, the issues surrounding approval becomes complicated where the property is part of a Strata Plan, a community of apartments or townhouses.

In some high-profile cases in Sydney, we see appeal after appeal where ultimately, it’s up to the building’s individual Strata Committee to approve or decline applications for pets.

In New South Wales, the default is no longer to ban pets, but instead allow pets after you obtain written approval from the Strata Committee, which can’t be unreasonably refused. This was a New South Wales legislative change which forms part of the Strata Schemes Management Regulations 2016.

However, this doesn’t consider a strata property’s individual by-laws. Even though legislation provides for the occupier of a strata apartment to have a pet, that doesn’t mean you have the strata committee’s approval. Strata Committees get to choose which by-laws it wants to incorporate into their strata scheme. Saying this, the recent unanimous ruling by three sitting judges from the NSW Court of Appeal, on a four-and-a-half-year battle between Jo Cooper (pet owner) and the Horizon building in Darlinghurst, now means that no blanket ban on pets will be permitted in any building anywhere in the state of NSW. You can read the article here, written by Sue Williams, Domain Reporter.

Prior to bringing a pet into a strata property, you’ll need to send a written request to the Strata Committee seeking permission. This applies even if your building is pet-friendly, and some strata managing agents may have a dedicated application form for this process.

Every Strata Committee will require different information but some of the information requested could be;

  • A description of your pet i.e. the pets breed, size and age
  • Details of your pet’s disposition, such as temperament and its activity needs
  • Proof of registration, microchipping, de-sexing, and all necessary vaccinations
  • References from former landlords, agent, or neighbours that mention your pet’s behaviour, particularly if you have previously kept a pet in a strata managed complex
  • Records of any formal pet training

In the application process, I feel that what’s considered strongly will be;

  • The by-laws for the particular building
  • The type, size, and number of pets
  • The size of the property vs. the size and the number of pets
  • If the pet will suitably fit in with the Strata Plan
  • Your personal routine i.e. if you work from home or take your pet to work

Whilst applications can’t be unreasonably denied, I think it’s fair to say that a large active dog won’t be approved for a small apartment unless, for instance, its owner takes the dog to work with them all day, every day.

If you reside in a rental property, you need to be aware that the landlord of the property is allowed to exercise their discretion on whether or not a pet is permitted by tenants in their apartment. In order to seek approval from the Strata Committee, the tenant’s pet application should be first submitted to the landlord (or Property Manager if managed by an Agency) for approval and then once approved by the landlord or agent, they will submit the pet application to the Strata Committee for you, so essentially this two-step process has to happen before a pet can be kept at the property.

“It is important to note that under the Hearing and Assistance Dogs Act 2009, any person who relies on a guide, hearing or assistance dog (and who has the right to be on a lot included in a community titles scheme, or on the common property) has the right to be accompanied their service dog, regardless of a strata committee’s by-laws on pets.” PICA Group.

So, it is worth looking into further.

For Tenants – find out what the owner’s position is on pets first, find out if there are other pets in the complex and therefore the by-laws are more likely to allow pets.

For Owners – it may be worth looking into getting a tenant approved to keep a pet, as I’ve written before most pet owners are responsible ones and can become long term tenants. For the most part, in my experience, renting to tenants with pets is a trouble-free experience.


Antonio Mesiti is the Principal & Property Manager at The Management Agency, a local Property Management specialist offering a one on one and end to end service for his Property Investor clients. For more information visit; https://themanagementagency.com.au/about/

Repairs, Maintenance & Fair Wear & Tear

16 September 2020

Taking care & looking after a rental property is a shared responsibility between tenants, landlords, and the Property Manager if managed by a Real Estate Agency.

The landlord is responsible for ensuring that the property is fit to live in and that repairs and maintenance are completed so that the property is in a reasonable state of repair. The tenant is responsible for keeping the property reasonably clean and undamaged and leave it in the same condition it was in when they moved in (fair wear and tear excepted). If the property is managed through a Real Estate Agency, then the Property Manager will act on behalf of the Landlord and will ensure that the property is fit to live in and is the go-to person, for the tenant to report any repairs or maintenance issues that arise during the tenancy.

What happens when maintenance and repairs are needed?

A tenant should contact their Property Manager or Landlord (if not managed by an Agency) as soon as possible and report the maintenance and/or repairs that are needed.

The Property Manager will need to identify how the maintenance and/or repair came to light. Was it due to damage caused by the tenant or just wear and tear?

If it was damaged caused by the tenant, then the tenant will be responsible for the reasonable cost of repairing, restoration and/or replacement to rectify the damage, however, if it is wear and tear, then the landlord will bear the costs.

What is ‘fair wear & tear’?

Fair wear and tear, is a term for damage that either naturally or inevitably occurs as a result of normal use and/or ageing. Another way to look at it is, fair wear and tear is damage that occurs even when an item is used competently and with care and proper maintenance. This covers property fixtures and items that deteriorate over time due to daily use and/or ageing.

Some of these are:

  • Worn kitchen benchtops
  • Worn handles or hinges
  • Scuffed flooring on the carpet on high traffic foot areas

On the other hand, it is not, wear and tear when the damage to the property is due to an accident, negligence, or even malicious.

Some of these are:

  • Burns on kitchen benchtops
  • Holes in the walls
  • Stains or burn marks on the carpet

As an example, carpet has an expected lifespan of 10 years, and therefore wear and tear consistent with its lifespan is expected, so daily walking on the carpet will result in wear and tear.

However, excessive staining, like from a spilled glass of red wine would not be considered ‘fair wear and tear’.

Somethings aren’t always as clear cut, so your Property Manager will need to apply some common sense and ask the right questions in order to make an informed decision on whether or not the damage is ‘fair wear and tear’.

Saying that fair wear and tear is not always something that requires repair, but simply needs to be taken into account based on the age and economical life of a fixture or fitting. Fair wear and tear always has to be a consideration, for example, at a final inspection at the end of a tenancy.

‘Fair wear and tear’ forms part of a Lease Agreement

The NSW, Residential Tenancy Agreement (Lease Agreement) and the NSW, Tenant Information Statement both reference the term ‘fair wear and tear’. Fair wear and tear is the responsibility of the landlord, and tenants are not responsible for paying for ‘fair wear and tear’, however, tenants need to be aware that it is there obligation to leave the residential premises as nearly as possible in the same condition, fair wear and tear excepted, as at the commencement of the tenancy.

There is though, excessive wear and tear, which takes into account, how long tenants have resided in the property or how long it’s been since things like repainting or flooring have taken place.

Excessive wear and tear, is wear from use that isn’t normal and that can come from a lack of overall care taken or just too many people residing in a property, above what has been agreed, as noted on your Lease Agreement.

Tenants need to be mindful that the cost of repairs, or the restoration of, the premises or goods leased with the premises if it is a result of damage caused by the tenant, other than ‘fair wear and tear’, may be deducted from the bond.

Landlords, what you need is a Property Manager that knows the difference and can step in accordingly, and tenants, you need a Property Manager that’s willing to take the time to Inspect the property and explain what’s what.


Antonio Mesiti is the Principal & Property Manager at The Management Agency, a local Property Management specialist offering a one on one and end to end service for his Property Investor clients. For more information visit; https://themanagementagency.com.au/about/

Rental Properties. What you can & can’t claim

It’s not uncommon for landlords to be confused about what they can and can’t claim for their rental properties. What often seems to make perfect sense in the real world does not always make sense for the Australian Tax Office (ATO).  

The Team at Simeoni Accountants have highlighted some key common problem areas in their blog below;

In general, deductions can only be claimed if they were incurred in the period that you rented the property or during the period the property was genuinely available for rent. This means a tenant needs to be in the property or you are actively looking for a tenant. If, for example, you keep the property vacant while you are renovating it, then you might not be able to claim the expenses during the renovation period if it was not rented or available for rent during this time (there are some exceptions to this general rule). There needs to be a relationship between the money you make and the deductions you claim.

Here are a few common problem areas:

Interest on bank loans

Only the interest on repayments for investment property loans, and bank charges, are deductible – not the actual loan itself. Also, if a loan facility is used for multiple purposes then only some of the interest expenses might be deductible. For example, if some of the loan is used to acquire or renovate a rental property but further funds are drawn down to pay for a holiday then this is a mixed purpose loan and an apportionment needs to be undertaken.

Repairs or maintenance?

Deductions claimed for repairs and maintenance is an area that the ATO is looking very closely at so it’s important to understand the rules. An area of major confusion is the difference between repairs and maintenance, and capital works. While repairs and maintenance can often be claimed immediately, the deduction for capital works is generally spread over a number of years.

 

Repairs must relate directly to the wear and tear resulting from the property being rented out. This generally involves restoring a worn out or broken part – for example, replacing damaged palings of a fence or fixing a broken toilet. The following expenses will not qualify as deductible repairs, but are capital:

  • Replacement of an entire asset (for example, a complete fence, a new hot water system, oven, etc.)
  • Improvements and extensions where you are going beyond the work that is required to restore the property back to its former state

Also remember that any repairs and maintenance undertaken to fix problems that existed at the time the property was purchased are not deductible, even if you didn’t find out about the problem until later.

The sharing economy

The deductions you can claim for ‘sharing’ a room or an entire house are similar to rental properties. You can claim tax deductions for expenses such as the interest on your home loan, professional cleaning, fees charged by the facilitator, council rates, insurance, etc. But, these deductions need to be in proportion to how much and how long you rent your home out. For example, if you rent your home for two months of the financial year, then you can only claim up to 1/6th of expenses such as interest on your home loan as a deduction. This would need to be further reduced if you only rented out a specific portion of the home.

Friends, family and holiday homes

If you have a rental property in a known holiday location, the ATO is likely to be looking closely at what you are claiming. If you rent out your holiday home, you can only claim expenses for the property based on the time the property was rented out or genuinely available for rent and only if the property was not actually being used for private purposes at that time.

If you, friends or relatives use the property for free or at a reduced rent, it is unlikely to be genuinely available for rent and as a result, this may reduce the deductions available. It’s a tricky balance particularly when you are only allowing friends or relatives to use the property in the down time when renting it out is unlikely.

A property is more likely to be considered unavailable if it is not advertised widely, is located somewhere unappealing or difficult to access, and the rental conditions – price, no children clause, references for short terms stays, etc., – make it unappealing and uncompetitive.

Blog via; Simeoni – Small Business Accountants.

Contact the team at Simeoni or your trusted accountant if you need any further advice.

Antonio

A beginner’s guide to depreciation

Property depreciation is a complex topic for Property investors and a topic that’s best covered by going straight to the Specialists, being BMT  Tax Depreciation. So here’s their beginner’s guide to Depreciation. What it is, how it works and how investors can use it to take full advantage of the deductions that they’re entitled to. Of course, shared with their express permission.

Depreciation is the natural wear and tear that occurs to a building and the assets within it over time.

Property investors are entitled to several taxation benefits however many fail to take full advantage of the depreciation deductions available to them.

While most investors are aware of claims for expenses such as interest on their loans, council rates, property management fees and repairs and maintenance costs, depreciation is a hidden factor often not considered.

To help you better understand property depreciation, here are the answers to some of the most frequently asked questions.

What is property depreciation?

As a building gets older, its structure and the assets contained within it wear out – they depreciate. The Australian Taxation Office (ATO) allows owners of income-producing properties to claim this depreciation as a tax deduction.

What can you claim?
Depreciation deductions are split into two distinct categories:

  • Division 43 capital works allowance
  • Division 40 plant and equipment depreciation

The capital works allowance relates to claims for the wear and tear that occurs to the structure of the property and any fixed items. Capital works includes items like the roof, walls, doors, kitchen cupboards, bathroom tubs and toilet bowls.

Generally, any residential building where construction commenced after the 15th of September 1987 will entitle its owner to capital works deductions. These deductions can be claimed at a rate of 2.5 per cent per year for up to forty years.

Owners of buildings constructed prior to 1987 should still find out what deductions are available, as often these buildings have undergone some form of renovation which can result in capital works deductions.

Plant and equipment depreciation can be claimed for the easily removable fixtures and fittings found within the property. There are more than 6,000 different depreciable assets recognised by the ATO, including items like carpet, blinds, air conditioners, hot water systems, smoke alarms and ceiling fans. Each plant and equipment asset is assigned an individual effective life and depreciation rate.

Under current legislation, owners of second-hand residential properties who exchanged contracts after 7:30pm on 9th May 2017 cannot claim deductions for previously used plant or equipment assets. Investors who purchase brand-new residential and substantially renovated properties, commercial real estate or add new plant and equipment assets to a second-hand residential property can still claim substantial depreciation deductions.

How will claiming depreciation help an investor?

As the owner of a residential investment property, claiming depreciation deductions can make a big difference to your cash flow.

During FY 2018/19, BMT Tax Depreciation found residential clients an average first year claim of almost $9,000.

A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of a property to ensure you maximise your cash flow and is 100 per cent tax deductible.

What is involved in completing a tax depreciation schedule?

BMT Tax Depreciation start by collecting the basic information needed to prepare the schedule. This includes simple details like the name you would like to appear on your depreciation schedule, the property address, purchase information and your property manager and accountant details.

Then, a property inspection is conducted. To make this as easy as possible, BMT can contact your property manager or tenant directly to arrange access to the property. A property inspector will count, measure and photograph all depreciable assets such as the flooring, light fittings, tapware and other items. All the depreciable assets found within your property will be recorded during the inspection and reported back to your local office.

From there, the depreciation and specialist tax team will review the information gathered and prepare your tax depreciation schedule. BMT can even forward your schedule to your accountant directly, saving you time.

Property investors who would like a quote on the deductions available in an income-producing property can Request a Quote online or contact one of the expert staff at BMT on 1300 728 726.

Article provided to The Management Agency by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) 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.

I hope you’ve found this post helpful and that it’s cleared up some of the questions you may have had about Depreciation.


Antonio Mesiti is the Principal & Property Manager at The Management Agency, A local and Property Management specialist offering a one on one and end to end service for his Property Investor clients. For more information visit; https://themanagementagency.com.au/about/