Home renovations hit a 14-year high last years as tighter lending conditions saw fewer Aussies move house.
In fact, the volume of renovations in the September 2018 quarter was 11 per cent higher than the same quarter in 2017.
And with the Australian property market set to fall further, this could well continue, says Master Builders Australia’s chief economist, Shane Garrett.
“The tightening of credit conditions have prevented many families from being able to move house over the past year. It seems that some of those have decided to renovate their existing home instead,” he said.
“Australia’s home renovations industry may be an unintended beneficiary of the tougher lending policies.”
But some renovation decisions are better than others when it comes to depreciation and home value.
Many renovators don’t understand the way their choices of materials, fittings and fixtures will affect the size of their tax return, MCG Quantity Surveyors, Mike Mortlock said.
“Most renovators try and save money by tackling DIY work, but there are smarter ways to increase your result without additional hard labour,” Mortlock said.
“I’ve run scenarios which show investors can create added thousands in tax deductions on a renovation simply by selecting one item or finish over another.”
Here are five ways to make the most from your renovations:
1. Focus on your kitchen, not your bathroom
Boost your tax outcome by spending more on your cooking area.
Kitchen renovations attract higher depreciation rates thanks to the sheer quantity of assets defined as plant and equipment items. These items depreciate fastest under the ATO guidelines, Mortlock explained.
All kitchen appliances are considered plant and equipment, but appliances with this classification are limited in the bathroom.
“I’ve run some typical numbers based on a $20,000 renovation and choosing to spend up in the kitchen instead of the bathroom can result in an additional $2,000 in deductions across the first three years.”
2. Avoid tiles, go for floating timber
“My tip for getting dollars back is to pick floating timber or carpet, rather than tile or polished concrete,” Mortlock said.
That’s because the ATO considers carpet to have a 10-year effective life, and floating timber has a 15-year horizon.
Tiles and concrete have a 40-year effective life.
The floorings’ depreciation is also calculated differently, with carpet and floating timber classed as plant and equipment. Tiles and concrete are thought of as part of the structure, which means they depreciate at a 2.5 per cent rate each year.
Carpet depreciates at 20 per cent a year and floating timber depreciates at 13.3 per cent.
“So, $1,000 of carpet can give you $200 worth of deductions in year one, while tile only allows $25 per annum.”
3. Fixate on fixtures
Think about price. As Mortlock explained, individual plant items with an opening value of less than $301 offer an instant deduction.
“If, for example, you’re considering cost-effective approaches to cooling rooms, ceiling fans could be the way to go.
“If you have one installed for $300 or less, you’ll get a $300 deduction right away.”
4. Think outside the house
If you upgrade your outdoor spaces you could also upgrade your rebate potential.
External fridges and barbeques will make your property attractive to renters and also attract short-term tax deductions.
“So, while the tenants are cooking up a storm and enjoying a coldie from the fridge, you can be reducing your tax responsibilities and collect a higher rebate cheque.”
5. What about windows?
Window coverings can help boost a property’s value as well as provide depreciation opportunities.
“They help with temperature control and filtering light, while also completing the property’s fresh, new look – and they’re a terrific tax deduction too,” Mortlock said.
“Best of all, most homes have a lot of windows so the deductible benefits are multiplied.”
Source: Yahoo Finance
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