Let's get real - why builders are not depreciation experts
As quantity surveyors we know a lot about building and construction yet clients would never expect us to build their properties for them. So why do builders often prepare depreciation reports for clients when they are not qualified quantity surveyors?
In most cases it comes down to convenience. The builder offers depreciation as part of their building services and the investor accepts. Yet what many people don’t realise is that just a few simple exclusions can cost you thousands in tax savings.
There are four common mistakes we regularly see on builder-prepared schedules. These include:
- Certain depreciable items are overlooked through a lack of experience
- Professional fees such as design and council contributions are excluded
- Some categories which allow a faster depreciation rate are overlooked
- Plant and equipment items such as ovens and dishwasher are based on the cost to the builder, rather than the investor
By far the worse and most common mistake is D. And this can cost you significantly.
You see when a builder buys an oven for $800 – that’s NOT what you pay for it. By the time you pay for this item, a range of other fees would have been included such as the architect’s design, transportation, installation and supervision.
Next thing you know…the real cost of this oven to you is $1100. And with depreciation, it’s the real cost we’re after, not what the builder paid.
Now that extra $300 depreciates at 20% per annum – as opposed to the 2.5% building allowance – which means you claim the depreciation faster