Cost Evidence for QS Depreciation Schedule

Discussion in 'Accounting & Tax' started by Tom Lloyd Reynolds, 14th Apr, 2021.

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  1. Tom Lloyd Reynolds

    Tom Lloyd Reynolds New Member

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    Hi All,

    I am trying to determine what the cost evidence requirements were for a QS Schedule. I know that there are ATO rulings saying that you cannot claim depreciation on money that was not spent by you, (eg Owner Builders can't claim their own labour). However, you can quite easily have a property surveyed after you renovate it and start depreciating it. There is no requirement that the property must have been sold before you can have the improvements assessed and claim on the assessed value. You can have a schedule done by BMT or whoever, and start claiming. There are plenty of posts in this forum about renovating a property, renting it out, and then having a QS go through and assess the cost of the improvements. This occurs even though the person doing the renovation would have 'some' cost evidence because they owned the property while the improvements were done.

    So the question is, what (if any) are the cost evidence requirements for the ATO if there is a QS schedule already in place?

    Lets go through an example;
    I buy an investment property and renovate it thoroughly. I do a lot of the work myself and I get it looking very nice. I spend $100k on the renovations, though I may not have been keeping track. I get a QS to come through and he values the improvements at $120k and we start depreciating. In 5 years time the ATO comes knocking and wants to audit me. They see the depreciation schedule done by BMT for $120k. Is that the end of it, or do they ask to see $120k worth of expenditure? I look through my records and can only drum up receipts for $50k worth of work. If they ask to see the expenditure, what's the point of getting the improvements assessed if you still own it? You should just claim what you can prove you spent.

    Cost evidence might be long gone for capital improvements where a schedule is already in place. I may have paid cash for materials from the demo yard, or gear off gumtree. I may have lost the receipts or have moved my banking services and no longer have access to transaction records. In summary, how authoritative is the QS depreciation schedule to the ATO?
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The QS report is likley fine for the depreciation purpose as QS' have a concession that allows them to estimate those costs for the DEPRECIATION deduction.

    However, you will have a CGT problem since the addition of the capital costs to the costbase without receipts etc will mean that they are not allowed in the costbase, when sold. A QS report cant be used for costbase. It is merely for decline in value deductions.
     
  3. Sean Connolly

    Sean Connolly Active Member

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    So in the example in this post, where the property investor knows roughly how much they spent on the renovation, then the QS comes in estimates it at a higher value. On the accounting & ato side of things, the QS's estimation is good enough to satisfy an audit? Even though like in this example, it is $20K over what the property investor spent?
     
  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The QS will ask you for your cost info. If its available it is used. If you arent honest with the QS the ATO could cancel the QS deductions. Of course the QS will consider your costs and any existing works prior to your spending
     

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