Is it worth my while to obtain a depreciation schedule?

Discussion in 'Accounting & Tax' started by new2this, 17th May, 2017.

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  1. new2this

    new2this New Member

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    Hello, I am new to all of this and need some sound advice. I purchased an investment property in October 2015, it was built in 1981 and I haven't done any renovations to it except for an interior paint job and replaced the window fittings prior to renting it out. Do you think it is worth paying out $$$ for a depreciation schedule? Your advice would be greatly appreciated.
     
  2. mikey7

    mikey7 Well-Known Member

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    Yes. I just ordered one today on a 1970's IP.
    When doing my research to choose the company, I saw most offer 'get at least double the cost of the report in depreciation in the first year, or the report is free'. You can also get discounts for saying your a PC member :)
     
  3. Darwin55

    Darwin55 Well-Known Member

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  4. Propertyman

    Propertyman Well-Known Member

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    Hi @mikey7 who did you end up going with? thanks
     
  5. Depreciator

    Depreciator Well-Known Member

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    Depends on what is in the property. Any QS can tell you what you might get in depreciation if you send them some photos. It's pretty easy.
     
    Last edited by a moderator: 22nd May, 2017
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  6. BMT Tax Depreciation

    BMT Tax Depreciation Chris Business Member

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    That's all I need to know.

    Is it an empty concrete shell? Is it a bark hut? If not, and you're paying taxes on an income above $37k, then it's extremely likely that your first full financial year's claim will leave you with more money than when you started. There'll be enough plant & equipment there that we can revalue in all but the rarest of cases.
     
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  7. Depreciator

    Depreciator Well-Known Member

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    Getting emails with photos of properties is a nice distraction.
     
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  8. Paul@PAS

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

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    Thats what the ACA reporter said to the judge
     
  9. mikey7

    mikey7 Well-Known Member

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    Ended up going with @Depreciator for both properties. They come highly recommended and give discounts if you mention you're a PC member.

    As far as I'm aware, the cost of these reports is tax deductible too.
     
    Last edited by a moderator: 22nd May, 2017
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  10. Propertyman

    Propertyman Well-Known Member

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    Thanks @mikey7 ill give them a call
     
  11. SimonQld

    SimonQld Well-Known Member

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    One thing no other QS will seem to tell you is that, if you buy an old property that does not qualify for Division 43 Depreciation and which has not been renovated by the previous owner, you can depreciate the plant and equipment items yourself under the rules of 'self-assessment' with the help of your accountant. My company has given this advice out for 20 years to upwards of a thousand clients.
    Sure, we could have been charging each of these clients $500-$600 but I always took the approach that the last thing I wanted was for a client to take that report, which only includes a dozen or so plant and equipment items, to their accountant only for their accountant to turn around and say "I could have done this for you!".
     
  12. Paul@PAS

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

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    Redline / Simon......

    I am a tax adviser and would NEVER, EVER ....recommend a client self assess Div 40 or ask me to do so. Both generally require actual taxpayer incurred cost and an accountant is not qualified to otherwise determine a present or prior value or an estimated cost where a substantiated historically incurred cost by a taxpayer is not known. A taxpayer doesnt posses the skills to assess age and value...Valuation may cost as much as QS report.

    I also value saving clients and taxpayers unnecessary costs but cant recommend any acts that would be determined by the ATO as reckless.
     
    Last edited: 22nd May, 2017
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  13. sammmeee

    sammmeee Well-Known Member

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    I am going to add I have used BMT on 3 occasions and was very happy with what I received. I also have used depro and only did so as I was offered half price as part of a Bankwest promo. I was bitterly disappointed. The report was dismal compared to BMT's and most importantly I got less depreciation on this house that had way more improvements and was newer than my other properties. I rang to get further info on how much they valued the very new kitchen at and was not able to give me a figure. Surely a simple answer... missing so much...
     
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  14. flyhere

    flyhere Well-Known Member

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    Have used Depreciator's great services and excellent price for my 7 purchases so far!

    Thank you so much @Depreciator
     
  15. Heinz57

    Heinz57 Well-Known Member

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    In light of the budget changes would it no longer be worthwhile for a future purchase of an old house?
     
  16. SimonQld

    SimonQld Well-Known Member

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    Paul, I think you mis-read my post. I never stated that a client could self-assess Division 43. I did however state that where the property does not qualify for Division 43, the client can estimate the plant and equipment (Division 40) items themselves (i.e. appliances, hot water system, carpets, blinds, etc). My post also needs to be read in context as a response to the original question raised by New2this whose property was constructed in 1981.

    Refer following extract from ATO Publication "Rental Properties 2016" which refers to 'doing yourself'

    "Where you purchase a rental property from an unrelated
    party, one objective means of establishing your cost of
    depreciating assets acquired with the property is to have
    their value, as agreed between the contracting parties,
    specified in the sale agreement. If the sale agreement
    for your property does not specify separate values for
    the depreciating assets, you will need to work out a
    reasonable cost for the assets to determine your claim
    for depreciation.
    You can do this yourself or you may wish to use a
    qualified valuer. Any valuation methodology used to work
    out the cost of the depreciating assets must be able to
    demonstrate a reasonable basis for that value having
    regard to the market value of the asset and the overall cost
    of the property.
    EXAMPLE
    23: Valuation of second-hand assets
    The Sullivans purchase a rental property with a 6 year
    old gas hot water system. It is reasonable to apply the
    Commissioner’s effective life determination of 12 years
    (for gas hot water systems) and treat the asset as having
    6 years remaining effective life. If the system cost $1,200
    new, it is reasonable to estimate the value of the hot water
    system was $600 at the time of purchasing the rental
    property. Therefore, in working out how much they can
    claim for the decline in value of the hot water system, the
    Sullivans use $600 as its cost."
    (https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/Rental-properties-2016.pdf)


    My prior post was merely highlighting the above to investors who are not given this option by most QSs when they call for a quote for a depreciation schedule. We feel it common courtesy to at least give the client the option rather than just taking their money. We always tell them to go and discuss with their accountant and, if their accountant tells them to still get a QS schedule, then at least they've considered their options.
     
    Last edited: 22nd May, 2017
  17. Depreciator

    Depreciator Well-Known Member

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    I don't think anybody purchases an old (pre 87) house for the depreciation allowance.
    Assets i.e. appliances, carpet etc, in old houses can no longer be depreciated. But if the house has had a renovation, this can be depreciated.
     
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  18. Paul@PAS

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

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    Thanks Simon - That clears up things to a great degree - But it also identifies some flaws in people who may consider that QS report costs can be avoided and the implied view that other QS are misleading taxpayers into expensive reports. I'm sure some QS's will post their views.

    Firstly. the proposed budget law change ends that aspect of the ATO view expressed in the guide for newly acquired property on or after 9th May 2017.

    As a QS you should realise very few taxpayers have the skills and capability to identify what plant and equipment items are depreciable and serious errors will occur. Then they would need to determine its value and remaining effective life and also carefully construct a schedule for the remaining life using the correct formula and choice of method. I would be guessing but reckon almost all taxpayers taxpayers will overstate or seriously understate such a self assessment. Both are equally a concern.

    Then the extent of any under claiming may well reflect the value a good and complete QS report can provide. I'm sure you get asked the question endlessly - Is it worth getting a report ? My view is always "YES" and only dont get a QS report when the QS tells you its not worthwhile. Many QS firms offer a fee basis that ensures a client never pays $600 for a report to find their deductions are not offset by a higher deduction value. I'm unsure if you do that but the major QS firms do.

    A further concern is for property where these is common area. Self determining plant value and the % that attributes to each property is very complex. Beyond almost all taxpayers and beyond my skills too

    Another concern is that of pooling. QS reports I commonly see allow for asset depreciation to be maximised and the report software generally shifts eligible items as soon as possible to a pool so that maximum depreciation occurs. This also means the asset cannot be written off at that point. Using the tax agent to correct this isnt a great alternative either. Tax agent software isnt that clever. And even if it did its very costly for a tax agent to re-enter a QS report. Literally a waste of clients money in my opinion and it taints the good work already done and paid for. I just enter those numbers and NEVER charge extra. If the taxpayers buy a item here of these I add it in to our software on top of the QS report etc. Perhaps scrap the former item if it can. The QS $600 one off (deductible) fee avoids this issue for a property lifetime.

    I appreciate in the OP you mention OLD property...But old property can contained newer renovations that may be eligible for Div 40 / Div 43 and taxpayers wont identify this. Any taxpayers who self assesses their plant would also fail to have the available Div 43 deductions appraised. So a cost shortcut becomes a cost impact as less value arises for the taxpayer. Or non-compliance if they self-assess the construction cost too. Most taxpayers would lack the skills to identify eligible construction costs and its likely start date. Renovations to a older property, hard landscape and of course common areas where that feature occurs.

    I dont share the view a DIY appraisal saves money. Quite the contrary. Certainly as a tax adviser I would refer such taxpayer requests back to a QS as I believe best value and accuracy arises through their services. If a QS send a client to me for my opinion I would say the whole point of the exercise has been lost. The QS should be able to estimate a rough benefit and advise the client whether to proceed and the cost. As an accountant I'm not qualified to assess that.

    I get the issue about possible cost saving and that the example concerns only a very old property. - But since the QSs I refer to often give a prior guestimate the final costs is soundly based and not a punt. They then maximise their deductions.

    Its important those who read this recommendation understand its very very limited application and understand that for newer property that method could be a poor choice.
     
    Last edited: 22nd May, 2017
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  19. SimonQld

    SimonQld Well-Known Member

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    Again, I never said Division 43 could be self-assessed and the extract from "Rental Properties 2016" relates only to plant and equipment (Division 40). This same publication also identifies every common plant and equipment item typically found in residential investment properties so identifying the items is not difficult. The property investor does not need to estimate the effective life because they can adopt the Commissioner's effective lives which are provided in the document. And, yes, strata titled units with common property items are more complex and we would not be recommending an owner of a high-rise unit with lifts, etc to do it themselves.
    To re-iterate/clarify, and in the context with the original question, my advice was to those clients who have a property that does NOT qualify for Division 43 deductions and is unrenovated (i.e. had nil Division 43 improvements) and may only contain half a dozen or so plant and equipment items and minimal or no common property. I am talking here about a Tax Depreciation Schedule that may only have up to $5,000 in plant and equipment items and a QS charging $500-$600 for the Schedule without informing the client upfront that they can do it themselves. I'm not asking you to agree with the advice. You are welcome to your opinion. However, respect the fact that a fellow professional is merely stating the facts (i.e. re-iterating ATO printed material) and information that many investment property owners are unaware of.
    I would appreciate it greatly if you would edit your original comment on this thread questioning my status as a tax professional and you comment implying that I was recommending clients to self-assess Division 43 deductions.
     
  20. Paul@PAS

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

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    I agree you didnt indicate self assessing Div 43. I drew that obvious outcome. But a taxpayer who self assesses one aspect surely wouldnt then seek a QS report for the other.

    The very limited application to old property - where would $5K of plant and equipment from 1981 come from ?

    If a taxpayer came to me with a handdrawn list of P&E assets they self assessed worth $5K on a 1981 property I would refer them to a QS. The effective lives in the ATO Ruling are for "new". Determining an assets age is not easy.
     
    Last edited: 22nd May, 2017

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