The Young Investor

The Secret to Financial Freedom

As you work towards your investment goals you must embrace the future and do all you can to ensure you attain your goals, despite the challenges you may face.

There is one major key factor in determining whether or not you will reach your financial goals.

There are many things you can do every day that can help determine whether you reach the pinnacle of success or remain in the valley of missed opportunity, but very few things will figure as prominently as your finances.

If you don’t control your money it controls you! Here’s how to regain control of your finances.

Control Your Spending - take control of your spending habits and you can have a much bigger say in the types of deals you have available to you.Have and stick to a realistic budget. Make packed lunches instead of buying take away. This could save you between $4-15 per day alone! Imaging what that extra cash will do for your savings or your mortgage. Be absolutely clear about where your money is being spent and you’ll have control over reducing unnecessary expenses. If you don’t really need it, don’t buy it.

Control Your Debt -By keeping your credit card balances low you free up additional funds for additional property purchases. Credit cards charge hefty interest rates and make it all too easy to spend more than you otherwise might. In many ways this goes hand in hand with controlling your spending because for many investors (especially brand new ones with unrealistic expectations) their first inclination is to whip out a credit card for routine purchases.

Control Your Saving - get into the habit of regularly setting money aside for a rainy day. By having 3-6 months of expenses in an interest earning account you have cash available in case of a short term need, or you could take advantage of more property opportunities. Sometimes a seller will agree to your terms if you can meet their need for cash. If you have a few thousand dollars sitting in an account you can access it quickly and still get a lucrative deal while it’s still available.

Control Your Habits - It’s very easy to have expensive habits that can reduce the pool of money you have when you need it. It could be $4-$5 cups of coffee, cigarettes, or other substances. Aside from the potential long term impact some habits can have on your health, they can also take money away from your investing activities. Take control of the kinds of things you spend your money on. You’ll be surprised by how much extra cash you can come up with after just 30 days!

Control Your Giving - There’s nothing more empowering and fulfilling than giving money away. You want to make a regular habit of giving to charities or organizations you believe in. But it is possible to go overboard by trying to help too much. There is a direct connection between giving and receiving - just make sure you really believe in the organizations you’re giving your money to!

Control Your Time - It’s very easy to waste countless hours in front of a television set or hunched over a computer surfing from one web site to another.By taking control of how and where you spend your time you can financially empower yourself by freeing up precious minutes - and hours - for more lucrative opportunities. A great way to save time is by outsourcing routine tasks to others. You’ll be able to close more deals and you’ll have more free time for your family and leisure activities you enjoy.

Control Your Thinking - You should get motivated and fired up every day! Instead of listening to negative people complain about high gas prices, inflation, or politics, tap into a good motivational book, CD, or seminar that will do something for you other than raise your blood pressure. By controlling your thinking and your thought processes you can build your own cartel of real estate investment properties!

Perfect this one idea - Have Self Control. Make it who you are. The only secret to financial empowerment is no secret at all. It lies in taking control over yourself, your finances and ultimately, your life.

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How To Evaluate/Analyze Properties Like a Seasoned Investor!

Purchasing Residential Investment Property? Not sure what price you should pay or where you should negitiate to?

Lorne Vogt created the Evaluyzer to help you l

earn How To Evaluate/Analyze Properties Like a Seasoned Investor!

If you are buying or considering buying residential investment property, the Evaluyzer will show you how you can save time and money by selecting the right property that meets your investment objectives.

What truly makes this program different from all others, is the complex equations that Lorne developed to formulate an exclusive feature called MyCap^TM.

MyCap^TM takes into account key data and automatically computes (based on your investment goals) the maximum purchase price. Then with a click of the mouse recalculates all three profit centres, giving a new picture of how the investment will perform. You now have a number to negotiate to - no guess work.

This is a fantastic time saver, will generate the returns you expect.

Remember: “It’s All About the Numbers!“.

Try the Evaluyzer for yourself

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Depreciation Quickfinder Handbook 2008 Tax Edition

Review
“This unusual book makes tax tactics actually interesting, whether you are a novice or a serious full-time investor.” –The Washington Post

Review
“There should be a law requiring every landlord to read this great book. It simplifies the complicated, makes boring tax laws interesting, and offers landlords the major financial incentive of saving tax dollars…. On my scale of one to 10, this outstanding book rates an off-the-chart 12.”

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Quicken Rental Property Manager

Quicken Rental Property Manager 2 lets you keep easier records for your rental properties. Have the information you need on-hand for tax-time, and always know just how your properties are performing.

No more frantic searching for the right receipts and paid invoices through folders and shoeboxes! Flag deductions you aren’t sure about, for later review by an accountant Track vehicle mileage and deduct it for better returns at tax time

Product Features

Organize all your information in one place, into simple sheets
Track all your income, expenses, and tax information
Save time retrieving financial information — Easily categorize your financial information throughout the year using the income and expense log
See how your properties are performing — get instant answers to your questions about profitability
Take every allowable deduction all year, as you record your expenses into a Schedule E category list

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Effective lives for depreciation schedule

Depreciating asset Effective life in years

Carpets

- in commercial office buildings 8

- in ten-pin bowling centres 4

-Computers

-generally 4

-laptops 3

Curtains and drapes 6

Fire extinguishers 15

Hot water installations for commercial

office buildings (excluding commercial boilers and piping)15

Lawn mower- motor 62/3

- self-propeled 5

Library (professional) 10

Motor vehicles

- cars generally 8

- hire and travellers’ cars 5

- taxis 4

- motorcycles and scooters 62/3

Office machines and equipment

- photocopying machines 5

Point of sale assets

- cash registers, stand-alone type 10

Power tools (hand operated) 5

Television receivers

- generally 10

Tools (loose) 5

Vacuum cleaners (electric) 10

Ruling TR 2007/3 as at 1 July 2007

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Example of Depreciation Calculation

Capital gain on depreciating asset

Larry purchased a truck in August 2006 for $10,000 and sold it in June 2008 for $8,000.

He used the truck 10% of the time for private purposes.

The decline in value of the truck under the UCA system up to the date of sale was $2,000.

Therefore, the sum of his reductions relating to his private use is $200 (10% of $2,000).

Capital gains tax is calculated as follows:

($10,000 - $8,000)

200
2,000

Capital gain from CGT event = $200 (before applying any discount)

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Capital gains, losses and depreciation

Capital gains or capital losses only arise from the disposal (ie. sale) of a depreciating asset.

A gain or loss will only arise to the extent that you have used the asset for a non-taxable purpose (eg. Private purposes).

Capital gains and losses can be calculated using the Guide to Depreciable Assets from the Australian Tax Office

Calculating a capital gain or capital loss for a depreciating asset

You make a capital gain if the sale value of your asset is greater than its cost.

you make a capital loss if a depreciating asset is sold for less than its cost.

different formulas are used to calculate a capital gain or capital loss depending on whether the asset is in a low-value pool or not.

Depreciating asset not in a low-value pool: capital gain

If your depreciating asset is not a pooled asset , you calculate the capital gain as follows:

(termination value - cost)

sum of reductions
total decline

Depreciating asset not in a low-value pool: capital loss

You calculate the capital loss from a depreciating asset that is not a pooled asset as follows::

(cost - termination value)

sum of reductions
total decline

Sum of reductions is the sum of the reductions in your deductions for the asset’s decline in value that is attributable to your use of the asset, or you having it installed ready for use, for a non-taxable purpose.

Total decline is the decline in value of the depreciating asset since you started to hold it.

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Are You Maximising Tax Depreciation and Capital Allowance?

All types of income producing properties have substantial taxation benefits available to be claimed as a tax credit. Many property investors are missing out on thousands of dollars in tax depreciation deductions. Both new and old properties will attract some depreciation benefit that the owner is able to claim as a tax credit. A common myth is that older properties will attract no claim. Therefore it is worth making an enquiry about any property. When a property owner has not been claiming deductions for tax depreciation, previous financial years tax returns can be amended. The Australian Taxation Office (ATO) allows for up to the previous four year returns to be amended, in some instances the ATO may have to pay you money back!
The maximisation of a depreciation claim on any building requires a combination of construction costing skills and an excellent knowledge of Tax Legislation. This rare combination of skills has resulted in a select number of quantity surveying firm specialising in property depreciation.
Quantity surveyors are recognised by the Australian Taxation Office to be appropriately qualified to estimate building costs for the purpose of depreciation.
Your accountant should recommend a specialist to complete such a report, to maximise the depreciation benefits from your property.

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Tax Depreciation: An Investor Profile

The depreciation benefit to every investor will vary. The following example has been provided as an approximate guide, using the diminishing value of depreciation.
Property:
A two bedroom unit purchased for $400,000
Income:
Rented for $385 per week
Total income of approximately $20,000 per year
Expenses:
Interest, rates and management expenses $32,000 per year

Scenario 1 – No depreciation claim:
Pre tax cash flow
Taxation loss $12,000 = $230 per week
Post tax cash flow (top tax rate of 45%)
Tax refund $5,400
Net cash outlay $6,600 = $126 per week

Scenario 2 – With depreciation claim:
Pre tax cash flow
Tax depreciation $12,000
Cash flow position -$12,000
Total deduction $24,000
Post tax cash flow (top tax rate of 45%)
Tax refund $10,800
Net cash outlay $1,200 = $23 per week

This investor has over $100 extra a week by obtaining a depreciation report.
This demonstrates the after tax effect of applying property depreciation. The property investor in this situation has a bottom line benefit of $5,400 per annum. The benefit isthe difference between the $6,600 cost before depreciation is applied, and the$1,200 cost once depreciation is applied.
This profile emphasises the benefit of depreciation. The property investor has made this saving from the same property that has moments ago cost $6,600 for the sameperiod.
Article Provided by BMT & ASSOC Pty Ltd.

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Top Ten Tax Depreciation Tips

1. If my property was built before 1985, is it too old?
No. It is worth noting that:
? Your investment property does not have to be new: Both new and old properties will attract some depreciation deductions. A common myth is that older properties will attract no claim.
? You can adjust previous year’s tax returns: When a property owner has not been claiming or maximising tax depreciation deductions, the previous four financial year’s tax returns can generally be adjusted and amended. Please note, the adjustment period was recently amended to become a 2 year period.
? Note: if the deductions are not high enough to make it feasible to complete a report, we will not proceed.

2. Why is plant and equipment itemised?
The ATO specifies an individual effective life for each plant and equipment item. Consequently, our reports show the estimated cost for each item and its contribution to the depreciation total per financial year. The original building structure and capital improvements, or Division 43, are all written off at the same rate (unless building works have been completed over different legislation periods). Therefore individual costs for these items aren’t expressed in the report. If required by the ATO, the estimates for Division 43 can be justified.

3. Why does the depreciation and capital allowance schedule only last 40 years?
From the date of construction completion, the ATO has determined that any building eligible to claim the building write-off allowance has a maximum effective life of 40 years. Therefore, investors can generally claim up to 40 years depreciation on a brand new building, whereas the balance of the 40 year period from construction completion is claimable on an older property.

4. Can I claim renovations completed by the previous owner?
Yes. Anything in the property that is part of a previous renovation will be estimated by our quantity surveyors and deductions calculated accordingly. This includes items that are not obvious e.g. new plumbing, water proofing, electrical wiring etc. For capital improvements to qualify for the Division 43 building write-off allowance, they must have commenced construction within the appropriate Division 43 time periods.
5. What information do I need to provide?
To produce a Tax Depreciation and Capital Allowance report, you will need:

? Date of settlement
? Purchase price
? Access details for inspection (E.g. property manager or tenant details)
? Any information pertaining to improvements or additions made to the property including dates and actual costs (where available)
? The date the property became available for income producing purposes.

6. What is the difference between plant and equipment and the building writeoff allowance?
Plant and equipment items are items that can be ‘easily’ removed from the property as opposed to items that are permanently fixed to the structure of the building. Plant items also include items that are mechanically or electronically operated, even though they can be fixed to the structure of the building. Plant and equipment items include (but are not limited to):
? Hot Water Systems
? Carpets
? Blinds
? Ovens
? Cooktops
? Rangehoods
? Garage Door Motors
? Door Closers
? Freestanding Furniture
? Air Conditioning Systems
The building write-off allowance (otherwise known as Division 43) is based on historical building costs and includes things such as the bricks, mortar, walls, flooring and wiring.

7. Who is qualified to estimate construction costs for depreciation purposes?
Quantity Surveyors are one of the few professionals recognised by the ATO to have the appropriate construction costing skills to calculate the construction cost for the purposes of building depreciation.

8. What is pooling?
A low value pool exists providing investors the benefit of pooling items that meet either of the
following classifications:
Low Cost Pool - A low cost asset is a depreciable asset that has a cost of less than $1000 in the year of acquisition.
Low Value Pool - A low value asset is a depreciable asset that has an undeducted value of less than $1000. That is, the cost of an asset is greater than $1000 in the year of acquisition but the value remaining after depreciating over time (opening value less deductions in year 1 less deductions in year 2 etc) is now less than $1000. Assets meeting both these classifications can be placed in an itemised pool. Pooling is used in conjunction with the diminishing value method to maximise deductions in the initial years of the depreciation schedule.
9. How do you work out how old the building is?
The age of the building can be determined by obtaining council documents with dates pertaining to the original application approval date or the Occupancy Certificate date and final inspection date. Similar methods are used Australia wide, however some properties are privately certified. Your quantity surveyor will conduct the relevant searches required to accurately determine the age of a building. These include historical council searches regarding lodged development applications, as well as Occupancy certificates and certified final inspections.
10. What does a BMT & ASSOC tax report contain?
A detailed 22 page schedule includes the following components:
? A method statement;
? Schedule of Diminishing Value Method of Depreciation;
? Schedule of Prime Cost Method of Depreciation;
? Schedule of pooled items for the property;
? Lists all Division 43 (10C & 10D) allowances available from the property;
? Detailed 40 year forecast table illustrating all depreciable items together with building write off for both Prime Cost and Diminishing Value methods;
? Comparative table of the two methods of depreciation;
? Common property items within strata or community title complexes such as lifts and swimmingpools are included in the depreciation report for a unit in a multi-unit development ;
? The report is structured to facilitate the client to be able to amend previous years’ returns to recoup unclaimed depreciation benefits; and
? The report is pro-rata calculated for the first year of ownership based on the settlement date so that the accountant has the exact depreciation deductions for each year. The report will ensure maximum depreciable items are identified and will take into account the pooling of low cost and low value items. It is valid for the life of the property, until capital improvements are undertaken or ownership changes.
Article Provided by BMT & ASSOC Pty Ltd.

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