Depreciation - How does it work?

Depreciation1 by Annie33rd posted 29th Mar, 2022 at 9:09 PM

Depreciation2 by Annie33rd posted 29th Mar, 2022 at 9:09 PM

Hi there,

Keen to understand how depreciation actually works?

I did a calculation using Depreciation Calculator for Commercial & Rental Property and it gave me a few different figures...

It states: $4600 min and $6200 max after which it has a disclaimer that says "second hand properties exchanged after 9th May 2017 can claim new plant and equipment assets added to the property however they are unable to claim previously used plant and equipment assets" followed by figures of $1,551 as a min and $2,046 as a maximum over 5 years under the heading "reduced tax payable - marginal tax rate 33%".

So based on the above, am I correct in assuming that any NEW plan and equipment added to the property after I take possession of it can be claimable at $4600 min and $6200 max however anything that was previously there are no longer claimable? So what are the $1,551 - $2,046 tax figures relating to? How does one work out how much to claim?

Thanks

 

You will either have evidence of the costs or get a QS to estimate it for you.

 

is this something that is arranged some time just before the tax return? And is it done just the once or every time something new is added to the property?

 

You would need to do it for each property because the first tax return is lodged - otherwise you would be missing out.

 

Don't leave it to the last minute, QS's have plenty of real work to do.

 

Your understanding is poor. That was a example calculation. Actual calculation of the specific is based on your property. The major QS fiorms who do tax schedules can easily assist you and quote a cost to produce a report and guide potential value in deductions for Div 40 (plant items, as you say just new) and Div 40 (existing items which can provide a CGT benefit and Div 43 construction expenditure.

Getting the QS report process started now means it may slot the fee deduction into 2022. There is plenty of time and you can do it after 30 June before lodgement. Its a one off report. Any other additions after that can be easily added by a tax agent to a schedule.

My recommendation is - Until a QS tells you not to bother, you ALWAYS obtain a QS report for each property. If you didnt claim past depreciation ask your tax adviser (who should already have had the discussion!) how far back you can amend and then advise the QS of this start point.

Videos 9 + 10 in our PAS TV series helps explain https://www.youtube.com/playlist?list=PLPEQdHkIpQ8qIlLEjx-IaxBoqkLdbTNjr

 

Great, thank you very much for the explanation. I will watch the videos.

I haven’t got the property yet (organising finances and buyers agent) but as soon as I do, I’ll get the process started.

Do you know roughly how long something like this takes? I’m just trying to work out timing…if I settle say end of May, will 4 weeks be enough to slot it into the 2022 year?

 

Weeks, not months.
If you self lodge you have months to lodge by 31 October. If you use a tax agent you have until May 2023.
If you are expecting a refund you can lodge late without penalty
We often lodge for clients without a QS report and amend for no extra charge when the QS report comes through.

 

Hi Annie33rd

The first numbers you have quoted from the table are a range of the building component of depreciation. As plant equipment is not claimable on a secondhand property, you are only able to depreciate the building portion. This is the structure of the building that depreciates over 40 years from when it was built, minus the plant and equipment.
Any new plant and equipment that you put in the property after settlement, can be depreciated normally from installation date.
The second lot of numbers, are what they are estimating you should get back as a refund, based on the first numbers, using the 37% marginal tax rate. Not the best representation, as it is very general, but it gives you an idea of the effect of depreciation on your assessable income.

 

Hello, @Annie33rd!

Sorry, I'm a bit late to this party, but I believe your queries have been answered above. I do have one question, though: given that you've been using our website and calculator, etc., have you posed the above questions to us directly? We'd be happy to answer your questions directly via phone, email or the chat facility you might have seen on our website.

To recap a couple of things, though:

I tell people that the ideal time to order a schedule is around the exchange of contracts. Then, for example, if the property is vacant, we can usually get in fairly easily and promptly after settlement. Having tenants in place causes no difficulties in most cases, though.

You're under no obligation to have the report completed in the same financial year in which you purchase the property. The only potentially important factor is that our fee is claimable in the year in which we receive payment.

Usually just the once, but your report might need updating if you make ongoing additions to the property.

If you still need clarification on anything, please let me/us know. All advice is obligation-free, if that's why you were hesitant to get in touch.

 

Hi Annie,

The online 'calculators' as we call them are a guide only.
Some are fairly sophisticated and are based on averaged deductions found in previous client's properties.

Others are just guestimates.

The only way you will get a good - and quite accurate - estiamte of yourr deduction entitlements is to have a Quantity Surveyor look over your property with an online search.

I'm happy to do this for you if you are still searching for a good QS.

Cheers,

Will

 

Totally agree. They are a mere guide and prone to variation and error. Most QS firms are happy to provide a more personal estimate of the merits of a QS report prior to incurring any cost. Many firms also offer a fee guarantee which limits the report cost if it has minor deduction benefits. As a tax adviser I always suggest you speak to one or two QS firms to get a feel for potential value of the deductions from a report as well as cost for the report.

 

Exactly. We of course have a calculator, but there are so many variables in properties that it's impossible for them to be any more than a guide. We would much prefer to have a chat and look at some photos and work out an estimate manually before deciding if it's worth proceeding.
Scott

 

Thank you so much for the replies. Makes perfect sense now!