Depreciation Differences: Old vs New PropertiesBMT Tax Depreciation is often asked by our clients and referrers about the depreciation potential of older properties. Many investors assume it is not worth getting a depreciation report completed on older properties. While it is true that newer properties contain more deductions than older properties, it is always worth getting some advice about the depreciation potential of an older property.

Older PropertiesDepreciation on the structure of a building is governed by the date that construction began. This may mean that a property might not be eligible to claim depreciation on the original structure. However, investors will still be able to make a claim on the fixtures and fittings within the building. All eligible assets are valued at the time of settlement regardless of their age. Older properties that have had a renovation are also eligible to claim depreciation on the work completed, even if this work was carried out by a previous owner.

New PropertiesOwners of new investment properties are eligible to claim depreciation on the building structure and the fixtures and fittings in their property. The effective life of a new building for Australian Taxation Office (ATO) purposes is 40 years (some exceptions apply). This means a brand new property is able to claim the entire construction cost over the life of the property. Properties that are not brand new can claim the residual of the 40 years. For example, if an investment property is 5 years old and its owner wants to claim depreciation on the structure, they have 35 years left of deductions to claim.

New Property (Year of Construction: 2010)

PurchasePrice

Depreciation Year 1

Depreciation Year 2

Depreciation Year 3

Depreciation Year 4

Depreciation Year 5

$450,000 $15,824 $14,017 $12,113 $10,981 $10,342

Older Property - Renovations (Year of Construction: 1978, Renovations completed 10 years ago)

PurchasePrice

Depreciation Year 1

Depreciation Year 2

Depreciation Year 3

Depreciation Year 4

Depreciation Year 5

$450,000 $9,560 $8,475 $7,395 $6,252 $5,607

Older Property (Year of Construction: 1972)

PurchasePrice

Depreciation Year 1

Depreciation Year 2

Depreciation Year 3

Depreciation Year 4

Depreciation Year 5

$450,000 $6,852 $5,720 $4,953 $3,860 $3,215

All examples are based on the diminishing value method of depreciation

Depreciation Differences

n Depreciation Differences: Old vs New Propertiesn BMT Facts of Lifen News Cornern Property Investment: A Look at the Current Marketn Tax Agentsn Construction Costs Per Square Metre

Inside this Issue

™

Issue 28 Summer 2010/11

FAQ: Why does the BMT report last 40 years? Some companies only provide

1 year, 5 year or 10 year reports.Because a property depreciates for up to 40 years, BMT provides a 40 year report so you have all of the information until everything has fully depreciated. This means you only need to have the report prepared once and only have to pay the fee once. Note: if major renovations are undertaken after you have a depreciation report completed it may be worthwhile updating your report.

Some other depreciation reports only last for 1, 5 or 10 years - meaning you either have to pay to get a new report or make complex calculations yourself each year. BMT saves the investor and accountant time and money by providing a 40 year report.

If you would like obligation free advice about your investment property scenario, please do not hesitate to contact the office and speak to one of our professionals.

www.bmtqs.com.au

Sydney:Level 20, Tower 2, Darling Park201 Sussex Street Sydney NSW 2000PO Box N314 Grosvenor Place 1220Ph: 02 9241 6477

Brisbane:Level 7, 320 Adelaide StreetGPO Box 3229 Brisbane QLD 4001Ph: 07 3221 9922

Cairns:181 Mulgrave RoadPO Box 1720 Cairns QLD 4870Ph: 07 4031 5699

Newcastle:19 Brunker Road, BroadmeadowPO Box 340 Newcastle NSW 2300Ph: 02 4978 6477

Gold Coast:Level 9, Seabank Building12-14 Marine ParadePO Box 810 Southport QLD 4215Ph: 07 5526 3520

The BMT Facts of LifeAt BMT we follow six simple ‘Facts of Life’ to ensure mutual success, client satisfaction and a happy work environment. The following represents who we are and what we believe in.

BMT is independent from any other organisationBMT is owned and operated by three Directors and is completely independent from any other organisation.

BMT only promote from withinBMT only offer promotions to staff who have been employed with us for some time. This ensures that staff in senior positions completely understand our customer focused culture, our services and our systems. They are then able to filter this culture down, ensuring that BMT always provide a superior level of service, exceeding our clients’ expectations.

BMT is proudly Australian owned and operated Founded in 1997 by three Directors, BMT is still owned and operated by Australians and offers an Australia-wide service for property investors.

BMT have eleven offices nationally. They are located in Sydney, Brisbane, Melbourne, Adelaide, Newcastle, Cairns, the Gold Coast, Perth, Canberra, Darwin and Hobart, enabling us to service all regions of the country. BMT is not a franchise and we support Australia by producing all of our products in Australia.

BMT take pride in protecting the privacy of clients – we do not release clients’ namesBMT are often requested to provide names of property investors to various organisations. Unless we have the client’s permission we will not release client details to anyone.

BMT will never compete with our referrersBMT do not sell real estate, complete tax returns, or provide financial, legal or investment advice/services. We do not take commissions or kickbacks for any purpose. We value and support every client from individual investors to national property organisations.

BMT have a detailed Quality Assurance systemOur Quality Assurance system matches knowledge, skills, experience and qualifications to the right job. It is a complex arrangement between the right personnel and advanced IT systems that allows us to ensure we deliver on our promises. From your initial call through to the completion of your tax depreciation report, we ensure you are kept up-to-date and experience our exceptional reporting standards at all times. BMT only use our own staff for site inspections, which guarantees the quality of our information. BMT’s QA system involves tracking, testing, reporting and refining and it continues to be developed and improved.

Hobart:Level 3, 85 Macquarie Street GPO Box 410 Hobart TAS 7001Ph: 03 6231 6966

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BMT opens two new offices!With demand for depreciation reports increasing in Tasmania and the Northern Territory, BMT Tax Depreciation has opened two new offices. This enables us to service these areas of Australia easily; providing a more efficient service for our clients.

Hobart Office: Darwin Office: Level 3, 85 Macquarie Street Level 1, Paspalis Centrepoint BuildingGPO Box 410 HOBART, TAS 7001 48-50 Smith StreetPhone: 03 6231 6966 GPO Box 209 DARWIN, NT 0801 Phone: 08 8941 3115

NEWS CORNERTR2010/2 is the new tax ruling that

governs effective lives, replacing TR2009/4. This was introduced July 1, 2010.

If you require any further information about BMT Tax Depreciation, please contact your local office.

If your property was built between 1985 and 1987, make sure you claim your 4% capital allowance deduction as it runs out soon!

DID YOUKNOW?

Visit www.bmtqs.com.au to see our new and improved website! We have made it more user friendly with helpfulinformation on depreciation as well as the new ‘live support’ feature where you can chat online with a depreciation expert.NEW WEBSITE

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SITE www.bmtqs.com.au

Property MarketWhile Australia faired reasonably well through the global financial crisis, there still remains some market uncertainty. Interest rates have increased, banks are being conservative with their lending, housing approvals are at low levels and the rental market continues to tighten.

There is still strong demand for housing throughout Australia; our population is still in a strong growth phase and due to government incentives over the past 12 months, first home buyers have reduced investment housing stock levels. This has strengthened demand.

The table below outlines year on year capital growth on Median house prices to June 2010. As can be seen all capital cities have experienced continued growth.

The current market situation has led to many industry experts suggesting that this is a good time for investors to increase their property portfolios.

If you intend to increase your property portfolio this financial year, don’t hesitate to get in contact with BMT Tax Depreciation. We can help you maximise your cash flow and reduce the tax you pay, as well as provide pre-purchase advice on the likely depreciation deductions you will be entitled to.

Property Investment: A Look at the Current Market

2006-07 2007-08

Rental income/deductions $m $m

Gross rental income 20,911 24,120

Less rental interest deductions 16,104 20,228

capital works deductions 1,226 1,398

other rental deductions 9,953 11,123

Total -6,372 -8,628

BMT Tax Depreciation is always eager to help property investors achieve the most out of their investment property. By claiming the maximum depreciation on a property, the property investor will generally have more income and the depreciation obtained can often turn a negative cash flow property into a positive one.

The following article provides some statistics and reflection on the property market.

StatisticsThe ATO publication “Taxation Statistics 2007-08” has identified some interesting facts about property investors and the rental deductions they are claiming.

The following table identifies the number of individuals with an interest (solely owned, jointly owned or part-year owned) in an investment property:

In 2007-08, Australians had a negative net rental income of $8.6 billion, including $32.7 billion in rental deductions.

This means that Australian property investors have claimed more rental deductions on their properties than they have received in rental income.

www.bmtqs.com.auBrisbane:Level 7, 320 Adelaide StreetGPO Box 3229 Brisbane QLD 4001Ph: 07 3221 9922

Melbourne:Level 50, 120 Collins StreetGPO Box 4260 Melbourne VIC 3001 Ph: 03 9654 2233

Adelaide:Level 10, 60 Waymouth StreetGPO Box 1588 Adelaide SA 5001Ph: 08 8231 1133

Perth:Level 28, 140 St Georges TerraceGPO Box 2572 Perth WA 6001Ph: 08 9485 2111

Canberra:Level 6, 39 London CircuitGPO Box 2526 Canberra ACT 2601Ph: 02 6257 4800

Ask us about ourDouble our fee or it’s Free Guarantee

Hobart:Level 3, 85 Macquarie Street GPO Box 410 Hobart TAS 7001Ph: 03 6231 6966

Darwin:Level 1, Paspalis Centrepoint Building 48-50 Smith StreetGPO Box 209 Darwin NT 0801Ph: 08 8941 3115

2006-07 2007-08

Number of InvestmentProperties Owned Number of Investors Number of Investors

1 1,118,260 1,206,627

2 281,944 303,359

3 85,193 91,698

4 31,227 33,552

5 12,740 13,765

6 or more 13,348 14,580

Total 1,542,712 1,663,581

Source: ATO

Interestingly, ATO figures also show that in 2007-08 only 617,938 claims were made for capital works deductions (total of $1.398 billion). This means that only 37% of investors are claiming the deduction, and in our experience, the majority of investors are not maximising their claim. While many investment property owners think that their properties are too old to claim the capital works deduction, it is always best to consult a tax depreciation specialist about your depreciation entitlements. BMT Tax Depreciation can advise on qualifying dates and legislation to ensure you get the most from your rental deductions.

Tax Agents

Recent changes to the Tax Agents Service Act has resulted in Quantity Surveyors needing to be registered as Tax Agents as they are seen to be giving tax advice through the production of tax depreciation and capital allowance reports.

The governing body of Quantity Surveyors (the Australian Institute of Quantity Surveyors - AIQS) has become a ‘Recognised Tax Agent Association’, enabling full members of the AIQS who have sufficient experience to gain their registration to become Tax Agents.

Through BMT Tax Depreciation’s experience and our individual accreditation with the AIQS, BMT are endorsed to be registered tax agents to prepare tax depreciation reports.

Please do not hesitate to contact our Directors or Associate Directors at the office if you would like any clarification on this matter.

Source: ATO

City Median Price** % Change in index value, Year on year***

Sydney $512,000 10.4%

Melbourne $470,000 16.0%

Brisbane $445,000 4.5%

Adelaide $390,000 9.1%

Perth $475,000 5.1%

Darwin $489,750 14.3%

Canberra $495,000 10.6%

National $465,000 10.5%

Hobart * $320,000 3.9%

*Hobart results are based on final May data** based on settled sales over quarter*** based on capital growth to June 2010. Source: RP Data

Visit www.bmtqs.com.au to see our new and improved website! We have made it more user friendly with helpfulinformation on depreciation as well as the new ‘live support’ feature where you can chat online with a depreciation expert.

BMT

NEW

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Construction Costs Per Square Metre - Sydney

Construction Type Level of FinishHouse Low Medium High3br brick veneer project home, level block, single level, shelf design ................................................................................. $980 $1,250 $1,5803br full brick project home, level block, single level, shelf design ...................................................................................... $1,010 $1,320 $1,6204br brick veneer home, level block, single level, unique design ......................................................................................... $1,520 $1,750 $1,8354br full brick home, level block, single level, unique design .............................................................................................. $1,595 $1,810 $1,9523br brick veneer project home, level block, two level, shelf design .................................................................................... $1,029 $1,310 $1,6603br full brick project home, level block, two level, shelf design .......................................................................................... $1,060 $1,380 $1,7104br brick veneer home, level block, two level, unique design ............................................................................................ $1,590 $1,830 $1,9254br full brick home, level block, two level, unique design.................................................................................................. $1,670 $1,910 $2,050Architecturally designed executive residence .................................................................................................................. $2,100 $3,250 $4,900

Townhouse2br, single level brick veneer townhouse, including allowance for common property ............................................................ $950 $1,220 $1,5102br, 2 level brick veneer townhouse, including allowance for common property .................................................................. $1,150 $1,320 $1,6553br, single level brick veneer townhouse, including allowance for common property ............................................................ $940 $1,210 $1,5003br, 2 level brick veneer townhouse, including allowance for common property .................................................................. $1,260 $1,480 $2,200

Units3 level walk-up unit complex, concrete structure, ground floor parking .............................................................................. $1,420 $1,700 $2,2003 level walk-up unit complex, concrete structure, basement parking.................................................................................. $1,510 $1,780 $2,2504-8 level walk-up unit complex, concrete structure, ground floor parking ........................................................................... $1,550 $1,820 $2,3704-8 level walk-up unit complex, concrete structure, basement parking .............................................................................. $1,650 $1,920 $2,4808 or more level unit complex, including lift and basement car parking................................................................................ $1,710 $1,970 $2,940

Commercial1-4 level open plan offices, including A/C & lifts, excluding fit out ..................................................................................... $1,280 $1,510 $2,2244-8 level open plan offices, including A/C & lifts, excluding fit out ..................................................................................... $1,520 $1,850 $2,3258 levels and over, including A/C & lifts, excluding fit out ................................................................................................... $1,820 $2,064 $2,689

IndustrialHigh Bay Warehouse, standard config, concrete floor, metal clad....................................................................................... $790 $885 $950High Bay Warehouse, standard config, concrete floor, pre-cast concrete wall clad ............................................................... $900 $990 $1,100

RetailSuburban shopping mall area including A/C .................................................................................................................... $1,295 $1,620 $1,950Supermarket, including A/C, excluding fit out .................................................................................................................. $1,280 $1,400 $1,530

Hotels/MotelsSingle level boutique motel, including A/C, guest facilities ................................................................................................ $1,860 $2,390 $3,000Single level tavern/hotel, including A/C, excluding loose item fit out .................................................................................. $1,650 $2,050 $2,200

Local Call: 1300 728 726 Local Fax: 1300 728 721 Email: info@bmtqs.com.au Website: www.bmtqs.com.au

DisclaimerThe Construction Costs herein are published on and should be read subject to the following conditions:1. Construction costs are published as a matter of interest only and are not intended to be relied upon by readers. In any situations which may be similar to matters herein readers should exercise and rely upon their own judgement.2. Neither BMT & ASSOC, BMT Tax Depreciation nor any of its officers or employees bear any responsibility for any error in the material published in this publication or in any previous publication, or for any damage or loss resulting from any reliance on any material published in this publication or in any previous publication.3. Construction costs are not intended for tendering or pricing variations. They are average prices in the Metropolitan Area and should be adjusted with reference to specific conditions. The rates include the cost of labour and material, waste, hoisting,fixing in position and for profit. The profit allowance is based on the prevailing market conditions in each capital city.4. These Construction Costs were produced prior to publication and due allowance should be made in this regard to the rates shown.5. The rates exclude any allowance for Goods and Services Tax including compliance cost. Costs exclude land, demolition and any work outside the footprint of the building.6. The BMT & ASSOC and BMT Tax Depreciation privacy policy has been amended. Please refer to our website for a copy of the updated policy.

This newsletter is issued as a helpful guide and is not intended to, and does not cover all aspects of the topics discussed. Professional advice should be sought before any action upon these topics is undertaken.

Gold CoastLevel 9, Seabank Building12-14 Marine ParadePO Box 810 Southport QLD 4215Ph: 07 5526 3520 Fax: 07 5526 3521Cairns181 Mulgrave RoadPO Box 1720 Cairns QLD 4870Ph: 07 4031 5699 Fax: 07 4031 5799Newcastle19 Brunker Road BroadmeadowPO Box 340 Newcastle NSW 2300Ph: 02 4978 6477 Fax: 02 4978 6499PerthLevel 28, 140 St Georges TerraceGPO Box 2572 Perth WA 6001Ph: 08 9485 2111 Fax: 08 9485 2133

SydneyLevel 20, Tower 2, Darling Park201 Sussex Street Sydney NSW 2000PO Box N314 Grosvenor Place 1220Ph: 02 9241 6477 Fax: 02 9241 6499BrisbaneLevel 7, 320 Adelaide StreetGPO Box 3229 Brisbane QLD 4001Ph: 07 3221 9922 Fax: 07 3221 9933MelbourneLevel 50, 120 Collins StreetGPO Box 4260 Melbourne VIC 3001 Ph: 03 9654 2233 Fax: 03 9654 2244AdelaideLevel 10, 60 Waymouth StreetGPO Box 1588 Adelaide SA 5001Ph: 08 8231 1133 Fax: 08 8231 6600

DarwinLevel 1, Paspalis Centrepoint Building 48-50 Smith StreetGPO Box 209 Darwin NT 0801Ph: 08 8941 3115 Fax: 08 8941 3116CanberraLevel 6, 39 London CircuitGPO Box 2526 Canberra ACT 2601Ph: 02 6257 4800 Fax: 02 6257 4811HobartLevel 3, 85 Macquarie StreetGPO Box 410 Hobart TAS 7001 Ph: 03 6231 6966 Fax: 03 6231 6977

The above rates are exclusive of GST. Please visit www.bmtqs.com.au for more information.

Cairns 115 - 130%Brisbane 105 - 115%Sydney 100%Canberra 96 - 104%Melbourne 98 - 108%Hobart 87 - 97%Adelaide 98 - 110%Perth 100 - 120%

Regional VariationsPlease visit www.bmtqs.com.au for more information on tax depreciation

and construction costs, including our previous

publications and calculators!

If your development is not located in Sydney, you can still estimate the construction cost of a development by applying a regional variation percentage. Simply multiply the construction cost by the regional variation percentage. This will give you an approximate cost for the construction type per square metre in your area.