Having been in this industry for more than two decades now, I’ve met all sorts of property developers and investors. Many of the calls and inquiries I receive are from frustrated investors who could not get depreciation reports (or schedules) from their accountants or real estate agents. However, what most investors don’t know, is that there is an ethical and practical reason behind this method.
The main reason accountants and real estate agents are not qualified to create these reports boils down to one issue. Essentially, if your residential property was built after 1985 your accountant is not legally allowed to estimate the construction costs. It is important to note that the Tax Ruling 97/25, issued by the Australian Taxation Office (ATO) has identified quantity surveyors as properly qualified to make the appropriate estimate of the construction costs, where those costs are unknown.
Qualified Quantity Surveyors
Based on this ruling, this means accountants can offer advice around other aspects of tax depreciation. But construction costs and property depreciation are highly technical domains and must be calculated or estimated by qualified quantity surveyors in order for the report to be legally acceptable.
In nearly all cases, you will gain a larger benefit using a quantity surveyor to prepare your depreciation schedule. This is simple due to the fact that the quantity surveyor will physically visit the property. This can only be of benefit to you, the property investor, as the quantity surveyor will discover items that can only be seen from a visit to the property, and could have otherwise been missed and left out of the report.
Work out how much you save using our free property depreciation calculator or make it happen and get a free quote for a depreciation schedule now.
This blog is an extract from CLAIM IT! – grab your copy now!
Claiming depreciation is one of the most important steps in an investor’s journey. Here’s my Top 5 Tax Depreciation tips to maximise the return on your investment property.
Number 1: Use an Experienced Quantity Surveyor
You’ve just paid hundreds of thousands of dollars for a property. Do you really want to risk missing out on tens of thousands of dollars in deductions just to save a couple of hundred tax deductible dollars on the ONLY tax break available to you that can be open to interpretation and skill?
The ATO has identified quantity surveyors such as Washington Brown as appropriately qualified to estimate the original construction costs in cases where that figure is unknown. The laws have also changed frequently over the years and each building is unique, so it pays to get expert advice. The ATO requires all companies who prepare Tax Depreciation Schedules to be registered Tax Agents.
Number 2: Claiming the Residual Value Write Off
I believe millions of dollars will be missed over the coming years in tax depreciation claims due to changes in what can be defined as ‘plant and equipment’.
If you are renovating a kitchen or bathroom in a property built after 1985 – get a quantity surveyor in before you demolish so they can assess what the residual value of the existing items are. This residual value can be claimed as an outright deduction and can generate huge savings in the first year (The plant and equipment component of this may now be considered a capital loss rather than deduction from your personal income taxes due to recent Budget changes).
For instance, a rental property with a 20 year-old kitchen could possibly attract an immediate deduction of around $5,000 if removed.
The added bonus is that you get to claim depreciation on the new work once it is complete too!
Number 3: Small Items and Low Value Pooling
A dollar today is worth more than a dollar tomorrow so deduct items as quickly as possible.
Individual items under $300 can be written off immediately. An important thing to remember here is that provided your portion is under $300 you can still write it off.
For instance, say an electric motor to the garage door cost an apartment block $2000. If there are 50 units in the block, your portion is $40. You can claim that $40 outright – as your portion is under $300. You can also try to buy items that depreciate faster such as purchasing a microwave that costs $295 as opposed to one that costs $320.
Items between $300 and $1000 fall into the Low Pool Category and attract a higher depreciation rate. So for instance, a $1200 television attracts a 20% deduction whilst a $950 television deducts at 37.5% per annum.
Number 4: Old Properties Depreciate too
Even properties built before 1985 (when the building allowance kicked in) are worth depreciating.
The purchase price of your property includes the Land, Building and the Plant and Equipment. As a quantity surveyor we help you apportion or break down the purchase price into those categories.
In about 99% of cases we find enough plant and equipment items to justify the expense of engaging our firm (for ‘Pre-Budget’ properties). At Washington Brown we guarantee to save you twice the fee of engagement or your report will be free!
Number 5: Use the Washington Brown Tax Depreciation Calculator
The saying goes “if only I knew then what I know now!” When it comes to depreciation, you can. Investors can use our website, free of charge, and get an instant estimate of the likely tax depreciation deductions on a property before they buy it.
This calculator uses real life data collated from every inspection we do on behalf of our clients. So the data gets more accurate with time.
For more information on depreciation or to discuss your specific investment property, call us on 1300 990 612 or email firstname.lastname@example.org. Tyron Hyde is a director of Washington Brown – The Property Depreciation Experts. He has a degree in construction economics and is an associate of the Australian Institute of Quantity Surveyors.
Don’t DIY depreciation schedules
DIY Depreciation Schedules
As an expert in the market I am baffled by the number of companies offering do-it-yourself depreciation schedules. Not only are there some potential legal issues but, more importantly, you will be missing out on deductions.
The DIY option generally gives you a tick sheet and asks you to take your own measurements of rooms and other parts of the property.
Now, let’s say you measure from one bedroom wall to the other. If you do that all around the house you could reduce the property by 10% in gross area. At around $1,500 per square metre to build, you would have missed out on something like $15,000 worth of tax deductions.
When a client comes to us needing a depreciation report, we will send out a quantity surveyor to do a thorough site inspection. This involves measurement of all the rooms and areas in the property (allowing for wall widths and other anomalies) and all the plant and equipment items including carpets, blinds, ovens and air conditioners.
It is a thorough process and you should use technically qualified people to do it.
The Australian Institute of Quantity Surveyors’ (AIQS) Code of Practice also stipulates that site inspections are necessary to satisfy ATO requirements. This guarantees you won’t miss out on any deductions. The documentation can then be used as evidence in the event of an audit.
The AIQS also points out that those property owners who attempt to estimate their own depreciation, or use non quantity surveying qualified people, risk submitting an incomplete or poor depreciation report, which could be a double whammy. It could not only cost them in missed deductions but could also possibly attract an audit by the ATO if their report is not up to the standard required.
Work out how much you save using our free property depreciation calculator or make it happen and get an obligation free quote for a depreciation schedule now.
This blog is an extract from CLAIM IT! – grab your copy now!