Paying too much tax?
Whilst most caravan park owners are focused on continually improving their parks, strengthening their businesses and income, they may be unaware of the tax savings that already exist within their park. Often misunderstood or sometimes totally overlooked is the opportunity to depreciate most of the buildings and assets found within a park, regardless of whether there is a freehold or leasehold involved. Just as important, eligible small businesses can take advantage of the Australian Tax Office instant asset write off principles, depreciating the full value of the asset in the first year.
It is essential to engage an accounting and financial team with a solid understanding of the caravan park industry to unlock the available depreciation within your park, helping you minimise tax, particularly over the important first years of ownership.
Many buildings depreciate at a fixed rate of 2.5% per annum, however a suitably qualified Quantity Surveyor can identify the assets that depreciate at much faster rates. The list of assets that can be depreciated are extensive and can include items such as: cabins, furniture, bedding, cooking equipment, plumbing items, plant and equipment, heating and cooling assets. Experience shows many business owners are unaware of the opportunities to depreciate these items at the accelerated rates and subsequently not maximising their tax savings.
Significantly, these rules apply not only to new assets but to the many second-hand assets that are typically included in a park purchase. A Quantity Surveyor has the specialised expertise to allocate values to all park assets such as the cabins, plant and equipment and trigger a depreciation claim from the date of purchase. It is important to note, that when purchasing new or used assets, the 2.5% building rate should not automatically be assumed. Further investigations may uncover ‘tens of thousands of dollars’ worth of depreciation immediately available to the business owner which would otherwise have gone unclaimed.
Case study
Quantity Surveyors are recognised by the ATO as appropriately qualified professionals for the purpose of preparing Tax Depreciation Schedules. An ATO compliant schedule should set out the total claim available over a 40-year period.
A recent case study showed a caravan park with a leasehold purchase price of $450,000, included eighteen older style transportable cabins and a number of used assets such as; hot water services, kitchen appliances and utensils, floor finishes, the list goes on. Applying the principles set out above, the business owner was entitled to a full first year depreciation claim of $245,000. Assuming a company tax rate of 27.5%, this equates to a tax saving in excess of $67,000 in just the first full year of ownership.
How We Can Help
At Mintax, we have simplified the depreciation process for you, creating a user friendly, yet comprehensive experience for our clients, it’s as simple as calling either Aaron or Geoff who can assess the viability of a depreciation schedule for your caravan park. Once we have undertaken an initial assessment, we will arrange to come out and inspect your park. We walk through identifying depreciable assets, measuring and counting, from which we then produce a report displaying both methods of depreciation. We can also provide the report to your Accountant in CSV format so they can efficiently use the data from the report to complete your tax return.