P ro p e r t y T ra n s a c t i o n s i nB u s i n e s s A c t i v i t y S t a t e m e n t s

A BMT & ASSOC PUBLICATION • QUANTITY SURVEYORS ISSUE EIGHT SPRING 2000

IN THIS ISSUE:n Property Transactions in Business Activity

Statementsn Industry Reviewn How We Can Help Youn Property Tax Allowances: The Basics

At the time you receive this edition of Maverick,your business may be preparing its first BusinessActivity Statement (BAS). Many businesses havefound that it is not easy to determine whereparticular transactions must be recorded in the BAS. Property transactions can also have theirown added complexities. For example, the ATO has recently determined that only part of thesale price of residential properties sold under the margin scheme will be included in the BAS.The GST inclusive value of the margin added by the developer to the land acquisition cost isincluded in BAS Box G1. However, the proportion of the selling price equivalent to the landacquisition value itself is not included in the BAS.

Another recent announcement by the ATO involves the treatment of outgoings underCommercial Property leases which the lessor requires the lessee to pay directly to the suppliereg council rates to the Council. The lessor will ordinarily have a GST liability on the outgoingseven where paid directly by the lessee to the third party supplier. However, they must includethe tax inclusive charge in BAS Box G1.

Provided below is a table listing common property related transactions showing whether GST ischargeable, the relevant BAS Boxes in the GST Calculation Sheet and where the GST inclusiveamount must be included. It is not an exhaustive or definitive table of the GST treatment for alltransactions.

Property Depreciation and Construction Cost Consultants

BMT&ASSOCQUANTITY SURVEYORS

Cus toms House , Sydney.

One o f our la t es t p ro jec t s .

P R O P E R T Y D E P R E C I A T I O N A N D C O N S T R U C T I O N C O S T C O N S U L T A N T S

IS GSTTRANSACTION DESCRIPTION BAS BOX(ES)CHARGEABLE? Supplies you make

Sale of Commercial Property Y G1Sale of Leased Commercial Property as a Going Concern N Both G1 & G3Lease of Commercial Property Y G1Outgoings charged underCommercial Property Leases paid directly to lessor or third party supplier Y G1Car parking, signage and cleaning separately charged underCommercial Property Leases Y G1Taxes, rates and duties oncharged under Commercial Property leases Y G1Sale of new Residential Property under margin scheme- value of margin added to land acquisition value Y G1Sale of new Residential Property under margin scheme- value of land acquisition itself. N Not in BASSale of new Residential Property under full tax scheme Y G1Sale of “used” Residential Property N Both G1 & G4Lease (less than 50 years) of Residential Property N Both G1 & G4Supplies made pre 1 July 2000 N Not in BAS

IS GSTTRANSACTION DESCRIPTION BAS BOX(ES)CHARGEABLE? Acquisitions you makeAcquisition of Commercial Property Y G10Repairs to Commercial Property Y G11Acquisition of Residential Property N Both G10 & G13Repairs to Residential Property Y Both G11 & G13Water Rates paid to Council N Both G11 & G14Stamp duty paid to OSR N Not in BAS or

alternatively Both G11 & G14

Stamp duty on insurance premiums N Not in BAS Acquisitions of pre 1 July 2000Supplies N Not in BAS Depreciation/Amortization charges N Not in BAS

P R O P E R T Y T R A N S AC T I O N S I N B A S C O N T I N U E D

Property Depreciation and Construction Cost Consultants

BMT&ASSOCQUANTITY SURVEYORS

A P E R S P E C T I V E O N T H E P A S T , A S O L U T I O N F O R T H E P R E S E N T , A V I S I O N F O R T H E F U T U R E

I n d u s t r y Rev i e w

ScenarioMr & Mrs Jones have owned their investmentproperty for 4 years and have not beenclaiming or maximising the full depreciationand write off allowance available from theirproperty. Can the the Jones’ regain thesemissed depreciation benefits?

Yes. The Australian Taxation office allows ataxpayer to submit an amendment to theirprevious years’ tax returns, and so the Jones’can regain their unclaimed depreciationbenefits.

Amending previous years’ tax returns to regainmissed depreciation benefitsThe potential to amend previous yearsoverpaid tax can become an issue in caseswhere property owners who have heldproperty assets for a number of years andhave not been taking the full advantage of anindividual property’s tax depreciationpotential.

As a general rule, a taxpayer can apply toamend their previous years’ tax returns to thedate it was ‘due and payable’. This can beundertaken relatively easily for a period of upto four (4) tax years.

A taxpayer however, may extend theamendment beyond this 4 year period, if duecause and / or special circumstances exist - atthe discretion of the commissioner oftaxation. An objection to the commissioner’sruling must be submitted, and special causemust be shown.

The process of amending a previous year’stax return must be supported by appropriateevidence. In situations where property taxdepreciation has been under claimed, acomplete assessment and report by arecognised professional is preferred.BMT & ASSOC can provide independentconstruction costing and expert tax lawinterpretation to facilitate such an exercise.

BMT & ASSOC offer to appraise current orprevious property tax depreciation claims toassess whether the maximum claim is beingsubmitted - free of charge. An objectiveopinion of the feasibility of engaging ourspecialist services can be provided.

Should you require any further information orwish to discuss this matter in more detail donot hesitate to contact either of our offices.

While it is not clear whether improvements to

existing property should be included in BAS

Box G10 or G11, it is recommended that they

be included in G10 if they are recorded as an

addition to capital in your accounts.

It should be noted that the table lists the most

likely treatment for GST and the BAS Box.

Each transaction may have features which

result in a different treatment while the table

provides a guide, each business needs to

approach its own GST adviser before

completing the BAS for property transactions.

This article was prepared by Stephen Baxter, Associate Director, Indirect TaxConsulting Group. It does not attempt to exhaustively cover all the GSTissues relating to property industry supplies. Stephen can be contacted on(02) 9247 6464 if you wish to discuss the impact of GST on particularproperty related transactions which you are undertaking.

Accountants1.ATO compliant property tax

depreciation schedules;2.Support documentation to

recoup missed property taxdepreciation benefits;

3.Depreciation appraisals forpurchasers.

Solici tors1.Expert witness services;2. Insurance claim reports;3.ATO compliant property tax

depreciation schedules;4.Cost Schedules for contract of

sale for a property.

Real Es tate Agents - Sales 1.Property Tax depreciation

estimates for marketing purposes;2.ATO compliant property tax

depreciation schedules;3.Property feasibility study

calculations of development costs.

Proper ty Inves tors1.ATO compliant property

tax depreciation schedules;2.Support documentation to

recoup missed property taxdepreciation benefits;

3.Depreciation appraisals forpurchasers.

Proper ty Trus tsand Syndicates1.ATO compliant property

tax depreciationschedules;

2.Asset Registerpreparation;

3.Feasibility Studies.

Developers & Contractors1.Feasibility Studies;2.Budget Estimates and Cost

Planning;3.Tender Evaluation;4.Tax Depreciation forecasts /

estimates for marketing purposes;5.ATO compliant property tax

depreciation schedules;6.Bank representation;7.Progress Claim preparation;8.Bills of quantities.

Services offered to various industry professionals byBMT & ASSOC - Quantity Surveyors

Property Depreciation and Construction Cost Consultants

BMT&ASSOCQUANTITY SURVEYORS

H ow We C a n H e l p Yo u

A P E R S P E C T I V E O N T H E P A S T , A S O L U T I O N F O R T H E P R E S E N T , A V I S I O N F O R T H E F U T U R E

Property Depreciation and Construction Cost Consultants

BMT&ASSOCQUANTITY SURVEYORS

SYDNEY NEWCASTLEPO Box N314 PO Box 340Grosvenor Place 1220 Level 1, 110 Hunter StLevel 2, 185 Elizabeth St Newcastle NSW, 2300Sydney NSW Ph: 02 4927 8195Ph: 02 9241 6477 Fax: 02 4927 8196Fax: 02 9241 6499

Email: bmtassoc@ozemail.com.au Website: www.bmtassoc.com.au

BMT&ASSOCQUANTITY SURVEYORS

P R O P E R T Y D E P R E C I A T I O N A N D C O N S T R U C T I O N C O S T C O N S U L T A N T S

P ro p e r t y Ta x A l l owa n c e s : T h e B a s i c s

The Key To Profiting From Your Property InvestmentMany individuals and organisations are nowpreparing their returns for the 1999/00financial year. As always a tax cheque ismore welcoming than a tax bill. Oneparticular deduction that is available toholders of any income producing property isthe property depreciation and write offallowances claimable under Division 42 and43 of the Income Tax Assessment Act 1997(ITAA97).

Many property owners are losing potentialtax credits by failing to take full advantage ofa property’s tax depreciation potential. As anoften-overlooked method of obtaining taxcredits, property tax depreciation is availableto any property owner who obtainsassessable income by way of rent oroperates a business from a property.

Some examples of buildings that will attract aclaim for depreciation include:

1. rented apartments and houses;2. offices;3. retail buildings; 4. nursing homes;5. warehouses;6. industrial/manufacturing facilities; and7. hotels.

Most other types of buildings, if used forincome producing purposes, will also attracta claim for depreciation.

The depreciation potential of an individualbuilding will differ greatly depending on itsage, use and original construction cost. Themaximisation of a depreciation claim on anybuilding requires a unique combination ofconstruction costing skills and experience,

combined with an intimate knowledge of theITAA97. The Quantity Surveyor or propertydepreciation and construction costconsultant can ensure the client obtains themaximum depreciation potential availablefrom the property.

Any building irrespective of age, shouldattract a claim for depreciation with respectto the plant and equipment items containedwithin the property including air-conditioning,carpets, light fittings etc. Certain buildings willalso qualify for a construction write offallowance under Division 43 of the ITAA97.The construction date of the individualproperty is the key to claiming this deduction.As a general rule any income producingproperty constructed after July 17 1985 iseligible for the construction write offallowance.

Engaging a specialist to maximisedepreciation is beneficial at a number ofstages in the property life cycle including;

1. the purchase of an existing building;2. the initiation stage of a new building;3. the completion of a new building;4. currently held freehold and leasehold

property.

The individual property holder as well ascorporations with large portfolios often allowdepreciation to become a low priority andhence the tax credits generated from eachindividual property investment is notmaximised. Experience has shown clientsthat do engage a specialist obtain significanttax benefits of up to 50-100% over whatwould have previously been claimed.