Depreciation on new build

Hello all,

Just wondering how depreciation schedules are calculated on new builds. Do the QS created their report based on the actual build cost? Or much like a normal depreciation schedule, do they come out and do a check/estimate?

Many thanks in advance.

 

If they have it they will use it - otherwise they estimate based on their detailed knowledge.

 

We have to ask for your build costs. Whether we get them or not is the owner's responsibility!

A depreciation claim is supposed to represent the (eligible) construction costs of a build. If that cost is known, the ATO doesn't see why someone would need to estimate them. It would be similar to asking someone to estimate your interest repayments when you know what they are.

However, we not only estimate total construction costs, we also apportion values within a known total cost to different categories. For example, it's rare that your builder will give you a cost breakdown of your kitchen appliances, so we would need to determine the value of those appliances. As they depreciate more quickly, and hence give you a faster return in comparison to the building itself, the aim would be to apportion the maximum reasonable value to these assets. If you were to simply take your contract price and apply 2.5% p.a. to it, you'd be underclaiming in the early years and overclaiming later on.

 

Great! Thank you all for taking the time to reply.

 

And even when many builders do they will list the assets at actual invoice cost and ignore the installed cost INCLUSIVE of GST. Builders estimates are appallingly unreliable and tend to under estimate the depreciable value.

 

While we're talking about depreciation......I believe any depreciation claimed throughout your ownership reduces the cost base for CGT calculations upon sale of the property?
The benefit is you gain a 45% tax benefit now at the expense of a delayed tax liability of 22.5% (45% x 50% CGT discount)

 

Assuming the top marginal tax rate, the amount is at least 23.5% not 22.5%. Medicare levy shouldnt be ignored. It is 2%.

The other benefits is bringing cashflow in the form of higher tax refunds forward.

 

Hi Nick,

Chris from BMT is right here.
The QS will ask for the costs - if you can provide them.

And the builders will NEVER give up their costings.

They are always very sceptical of such a request and assume you are going to haul them over the coals for charging more than the going rate on a certain item.

Plus, their costs for items like appliances are rather irrelevant anyway.

Say the builder pays $600 for an oven.
It still needs to be delivered and installed by a sparky.
But the builder wouldn’t have a clue what that part cost him.

- but the ATO cares! They want to know the ‘supplied and installed’ price not the showroom floor price.

And that’s where the QS will step in and apportion (fairly and reasonably) how much the supplied and installed price is.

In short: getting a good QS to do a quality report on any brand new property is the only way to ensure max tax savings and no ATO headaches.

Hope that helps.

 

As Terry pointed out about my appalling maths the typical marginal rate (max) for large CGT gains can be up to 24.5%.... ie 45% x 50% = 22.5% + 2% medicare = 24.50%
If the taxpayer doesnt have private health there can also be impacts for medicare levy surcharge and taxpayers with HELP debts may face higher repayments. One off windfall profits can also trigger extra tax on employer and personal deductible super (an extra 15% of the contribution amount) but this can be paid from the fund by release.