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Depreciation on fence

Discussion in 'Accounting & Tax' started by D.T., 2nd Dec, 2015.

  1. D.T.

    D.T. Adelaide Property Manager Business Member

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    If a side fence is replaced between 2 neighbors, both of which are me but different holding entities, can they depreciate half the value of the new fence each?

    Does it matter if one side paid 100% for it?
    And over how many years?
    Maybe one for @Depreciator ?
     
  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Is it a repair or depreciation? Depending on price you might be able to 50:50 claim repair

    Otherwise I'd expect both can depreciate 50:50 as even though one person paid 100% of it they don't own it 100%, it's owned 50:50
     
  3. teetotal

    teetotal Well-Known Member

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    How's the relationship between the two neighbours :p is any one of them troublesome :D
     
  4. BMT Tax Depreciation

    BMT Tax Depreciation Chris Business Member

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    By our reckoning, unless there's a special ruling or law in place (perhaps particular to the state the property is in), only the entity that paid for it can depreciate it (given that the depreciable amount is based on the cost). It's a capital cost so it would be 2.5% over 40 years--i.e., it's not going to add a huge amount to the bottom line yearly.
     
  5. D.T.

    D.T. Adelaide Property Manager Business Member

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    Hmm ok, I thought it went by ownership rather than who paid?
     
  6. Depreciator

    Depreciator Moderator Staff Member

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    No, Chris is right. You can't really depreciate something you didn't pay for.
     
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  7. BMT Tax Depreciation

    BMT Tax Depreciation Chris Business Member

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    Not always. For example, most replacements under an insurance claim are ineligible for depreciation, regardless of the fact that you own them.
     
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  8. D.T.

    D.T. Adelaide Property Manager Business Member

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    Great, thanks both :)
     
  9. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    In 12mths time if @D.T. sold one (let's say the one who didn't pay) and the new owner came to you to do a depreciation report and you saw a nice new fence - wouldn't it be put in the depreciation report as you wouldn't know who paid for it?
    I'm not arguing, just trying to clarify in my mind. I suggested 50:50 because of this reasoning
     
    Last edited: 2nd Dec, 2015
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  10. Depreciator

    Depreciator Moderator Staff Member

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    Yep. That's exactly what would happen. It's a bit like the scenario where somebody does their own flash reno. They use their mates and do stuff themselves and the reno doesn't cost them much. The property is then sold to a new owner who gets a Dep Schedule that includes the reno. That reno will be costed at retail rates in the Dep Schedule.
     
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  11. Westminster

    Westminster Tigress at Tiger Developments Business Member

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  12. Rob G

    Rob G Well-Known Member

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    Interesting interaction of property law, tax law and equity.

    A fence is common property if it is on the boundary.

    This means it is jointly owned.

    The ATO presumes income and deductions from jointly owned income producing assets are shared equally. This is because joint income means a partnership exists in tax law. However, merely having a common boundary does not indicate joint investors deriving joint income.

    Additionally, the ATO presumption may be rebutted by showing that one holds their interest on trust for the other. If one pays the entire cost then the other may be holding a half interest on a resulting trust.

    All this is further complicated by common underlying indirect ownership so it may better to apply for a ruling or at least contact the ATO before lodging a return and getting into a potential dispute.
     
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  13. albanga

    albanga Well-Known Member

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    Very interesting! This could almost be a strategy in itself. Get a group of tradie mates, buy Run down properties, do them up for next to nothing and then on-sell them privately to one another until they all own an IP with a heap of tax deductions and a low entry point as you would sell the property at cost with no agents fees.
     
  14. Rob G

    Rob G Well-Known Member

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    Not a "strategy" but a tax evasion of fraud scheme.

    Quantity surveyors know full well that their niche depreciation report industry only survives on an ATO administrative concession.

    Technically, the vendor is required by law to provide the construction cost to the purchaser. The ATO concession applies when it is next to impossible for the purchaser to obtain the report. Theoretically the vendor should be subject to penalties if they fail to produce the report when requested.

    Fraud and evasion has no time limit for amended assessments. Penalties and interest are significant.

    These penalties pale into insignificance compared with those on the quantity surveyor by the Tax Practitioners Board where a surveyor knowingly, negligently or recklessly prepares false or misleading reports.

    Try telling the ATO that it is impossible for a purchaser to obtain construction cost information from a related party.
     
  15. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The ATO would likely run the view its a business / enterprise and deny all scheme deductions incl Div 40 / 43 which would not be entitled. Taxpayers can fight it out and pay penalties etc.

    I might argue that the cashflow issues with a scheme to inflate QS deductions is a minor concern when compared to the fundamental cost and interest, land tax and other holding costs that form part of strategy for financial outcomes.
     
  16. Depreciator

    Depreciator Moderator Staff Member

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    Some years ago there was a bloke doing the seminar circuit. He used to say to people, 'Here's a great strategy. Buy a property and when you get the keys take a month off work and call in every favour you can think of and do a reno for bugger-all. Then get a QS over and tell a few lies and convince them that you bought the place recently and the previous owner did a reno just before sale and you need it costed.'
    He disappeared, so I suspect he might have got into strife. That might not have been his only dodgy strategy.
     
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  17. albanga

    albanga Well-Known Member

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    I get where you guys are coming from but what about the time cost of the renovation? Whilst your friends are doing it for free, surely there time comes at a cost regardless if you paid for it? What would the ATO say in that regards?

    So yeah you buy a place, renovate it for material cost and then sell it at which time a QS prepares a report but they would factor labour into the cost right?
     
  18. D.T.

    D.T. Adelaide Property Manager Business Member

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    Time isn't a physical asset :p
     
  19. Depreciator

    Depreciator Moderator Staff Member

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    If you get a mate to work on a reno for beer and pizza, you can't then claim for labour. You didn't outlay the money. It would be like somebody who self manages a property and then says, 'Yeah, but if I used a property manager I would have paid them $2,000 last year so I think I should be able to claim it.'
    A QS can only go on what they are told. We often quiz people when we think they are being a bit ambitious. But when somebody commissions and uses a Depreciation Schedule, they take ownership of it.
     
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  20. albanga

    albanga Well-Known Member

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    Yeah fair points @Depreciator.
    It's not something I planned on doing, I'm selling my renovated property at the moment with my brother an electrician. Guess what few jobs are outstanding......tradies are useless! More so when they are friends and family! Haha