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Depreciation schedules are worth it

Discussion in 'Accounting & Tax' started by Paul@PFI, 30th Oct, 2015.

  1. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The question "Should I bother getting a depreciation report ?"continues on PC long after SS ended. Today I had a great example of why you DO bother. Why its a great investment.

    I will protect the parties and wont disclose anything personal. However long ago a taxpayer and wife bought some property. They didn't think a QS report worth the cost. Then they bought more property. Again, they didn't invest in a QS report.

    Now we are some 10 years down the track and they have done some improvements, reno etc and have a nice portfolio. But somewhere along the track the complexities with refinancing and all those capital costs lead to no returns being lodged..

    And then a property or two were sold. And the ATO demanded lodgement. Of course a tax bill delayed things and so push comes to shove. So all the lodgements are done and yes there is a small neg gearing loss etc but the CGT means a tax bill.

    So I revisit the issue and practically insist my new client invest a few grand in many QS reports. In some ways the overdue returns help since we can now amend many many years.

    So we amend to include the new depreciation and capital allowance deductions. And based on the number of QS reports the client will get a enhanced refund of $26K. And that's without looking at the 2015 year or future tax years.

    Client investment in QS reports $3,400. Refunds due $26,000. That's great value and these aren't even "new" properties.

    Lesson in this ??
    Rule #1 of QS reports :

    Until a Quantity Surveyor says not to bother then you should always seek a QS report. Don't worry about the cost - It will pay for itself. And if you undertake capital expenditure you should always do one of the following :
    1. Provide details to the tax agent (esp minor stuff like a few appliances); OR
    2. Get the QS to update the report at that time.

    Rule #2 of QS reports :
    Review the report from time to time when you replace obsolete / redundant / failed items. There may be a write-off deduction. Not always but sometimes.
     
    Frazz, JohnPropChat, Northy85 and 9 others like this.
  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Great post - I've saved the link and will be diverting clients who ask the question to this post :)

    Cheers

    Jamie
     
  3. Neil Richardson

    Neil Richardson New Member

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    Nice post Paul !

    Cheers
     
  4. Jerry O

    Jerry O Well-Known Member Premium Member

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    Good stuff Paul. Thanks! Same with Jamie, I will save this post and wait for someone to ask the "is it worth getting a dep sched?" question.. ;)
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    If Depreciator, BMT or any other QS says it everyone thinks they are selling something. My view is based on seeing thousands of clients benefit from enhanced deductions.
     
  6. Catalyst

    Catalyst Well-Known Member

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    Stupid questions, @Paul@PFI.....

    Should this be done if property is 50 yrs old? Is the cut off 40yrs...if everything/appliances in original condition??
     
  7. Azazel

    Azazel Well-Known Member

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    Good stuff Paul!
    It seems so obvious, I don't get why people wouldn't get one done.
     
  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    1. Cost
    2. Underestimate benefits (ie old property they believe has no depreciable value)
    3. Their mate is a expert
    4. The real estate agent passes a comment that its a old place and may not be worth it
    5. Tight on $... They will do it later. Maybe.
     
  9. York

    York Finance Broker Business Member

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    If the property still has 50 year old appliances and absolutely nothing has been done to improve it since originally built, I'd be more interested to know who on earth would want to rent it.
     
  10. CU@THETOP

    CU@THETOP Well-Known Member

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    If habitable and in a good location I expect a few punters would be.
     
  11. York

    York Finance Broker Business Member

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    I was really referring to the fact that I doubt a 50 year old house could still have original appliances that are operable. Not saying it isnt possible, just unlikely. I'd think you would be really norrowing down your market with that approach.
     
  12. Chilliblue

    Chilliblue Well-Known Member

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    Be careful of Rule 1 and get another opinion. The last property we asked for one the guys said don't bother.

    Turns out they were wrong and BMT were able to find a significant amount.
     
  13. BMT Tax Depreciation

    BMT Tax Depreciation Chris Business Member

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    That's not quite how it works. Despite the age of the property, plant and equipment items will always depreciate from settlement regardless of age. Even an unrenovated property will usually see between $1500 and $2500 in first-year deductions, which means most people will do better than break even the first time they use a report.
     
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  14. CU@THETOP

    CU@THETOP Well-Known Member

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    So what is the cost of a report for a highset 50s style 3 br no external structures weatherboard within 5kms of Bris CBD worth nowadays?
     
  15. Catalyst

    Catalyst Well-Known Member

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    Haven't viewed many 50yo properties. Just trying to wrap my hear around the parameters of depreciation.

    When I view a house from the 80s, I do wonder if there are any depreciation to offset the negative cashflow. I just tell myself that it's probably minimal...but in actual fact I have no idea :D

    If it's post war 60s or 70s, I guessed it was a no. But perhaps there is a glimmer of hope, after reading this thread :p
     
  16. Catalyst

    Catalyst Well-Known Member

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    That's good to know.

    Who are the best people to call to get the depreciation reports done? Someone local ie in the same city?
     
  17. York

    York Finance Broker Business Member

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    That person would be @Depreciator. Top bloke and really knows his stuff. He's easy to have a chat with and will give you a rough idea straight off the bat. Throw him a PM. He's always happy to chat.
     
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  18. Catalyst

    Catalyst Well-Known Member

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  19. Depreciator

    Depreciator Moderator Staff Member

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    Thanks York. Emails, PMs, phone calls and people sending photos and stuff like that are a nice distraction for me.
     
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  20. BMT Tax Depreciation

    BMT Tax Depreciation Chris Business Member

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    It's a how-long-is-a-piece-of-string question. Nobody can make an accurate assessment of depreciation potential based on age alone. How big is it? What's the level of renovation, either by a previous owner or the new one? Purchase price? Furnishings? Common area (for units and townhouses)? Settlement date and date available for income?

    In general, a pre-1987 property will fetch first-year deductions of between $2000-$6000, with a few outliers in either direction. Except for rare circumstances, the only time we find that it's not worth depreciating an pre-87 property is when it has been owned for at least 5-7 years. The reason for this is that most plant and equipment depreciation occurs within the first 5 years of ownership.

    For most QS firms, age and building materials don't factor into fees because the work required to complete a report is about the same. We tend to be fairly democratic in terms of not basing our fees on location either. If you find a property (even if you're just curious and aren't sure you want to buy it) then send me a private message and I'll be able to provide a quote and an estimate of likely deductions. The latter is important going in because you want to make sure your schedule performs well once you actually get it! Plus, I give forum members a small reduction on our usual fee.
     
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