Several tax specialists and national mid-tiers have found clients are struggling to understand their rights and benefits associated with depreciation, and accountants are being told to proactively engage with clients on the matter to avoid unwanted consequences at end of financial year.
Clients failing on depreciation front
Bentleys Sunshine Coast managing director Peta Grenfell told Accountants Daily that accountants should actively educate clients with an interest in property investment about depreciation.
“Clients usually understand there are tax benefits associated with owning a rental property, but they tend not to understand what they need to do to access the benefits, or how they work,” Ms Grenfell said.
“I think it comes down to the relationship the client has with their accountant. The more proactive the accountant is in helping the client to maximise their deduction and understand their investment the more likely we are to see an increase in understanding.”
In an interview with Accountants Daily, Pitcher Partners' David Staples said that accountants who don’t encourage communication and understanding early can end up creating more work for themselves and their clients in the long run.
“The most critical thing is for people to actually talk in advance,” Mr Staples said.
“I say to people if you don’t talk to us before you do it we can't help you and then it's a bit late after you've bought the property to tell your accountant 'oh we've bought this property' and then you try to get depreciation or capital works schedules out of people.”
Mr Staples said that record keeping is the most important aspect to save both accountants and clients time when it comes to doing tax returns.
“One of the things accountants can actually do is help people set up ways of tracking and keeping proper records because it's hard a year and a half after you've bought the property to come and do your tax return and say where's all this information,” he said.
BMT CEO Bradley Beer said there are five key mistakes that investors commonly make which accountants should work to educate them on.
The first mistake many investors make is not claiming all the legitimate items they are allowed to depreciate.
The second is investors believing that their properties are too old to hold any deductions, when a property’s age doesn’t necessarily rule out all deductions completely.
Thirdly investors who renovate their properties are often not aware of scrapping deductions available for the assets they remove and replace.
The fourth common mistake is investors believing that because they purchased their investment property some time ago that they cannot benefit from tax depreciation or items that may have been missed in a previous claim.
Lastly, many investors attempt to do their own tax claim and miss things out.