Post Budget - Is Depreciation worth it ?

The budget changes which curb SOME Div 40 depreciation deductions are starting to be understood by the quantity surveyors and the tax community.

The key question some are asking - Is a QS still worth it ?
The answer remains YES unless a QS suggests otherwise. A simple solution.

Benefits of a QS remain:

• Div 43 is often 3-4 times the eligible deduction compared to plant & equipment. Div 43 should remain the primary focus of deductions anyway. The "cream" may have disappeared for some properties but the majority of deductions may remain unchanged. What some may find is that they lose SOME deductions but certainly not all deductions. Where a report may have allowed say a $15K deduction in Years 1-2 it may reduce to $6K....$6K is always better than $0.
• Not all properties "lose"benefits. Some are grandfathered.
• There will be a new CGT loss benefit for those affected. In simple terms lets think of a split AC unit. It may not be deductible BUT if the QS report includes and shows a value for that asset it can be written off (when its effective life has ended) and a CGT loss claimed -
  • 1. When the specific unit of plant is scrapped. That loss could be used to offset CGT gains on things like shares, trust distributions, ETF income and much more.....OR
  • 2. When the property is sold the CGT loss on those plant items you never claimed is now available
• New acquisitions of plant items after the budget may continue to be depreciated where they are acquired during a tenancy. eg replacement assets like ovens, whitegoods, AC units etc. The accountant will now depreciate this if the QS report doesnt. We will add a schedule to the tax return. Nothing changes there.
• The final CGT on sale of a property will be NO LESS and NO MORE than it was prior to the budget changes.

The key important issue for the future is ensuring the QS report identifies those assets that lose Div 40 entitlement. I suspect there will be some QS reports that wont be as compliant as others. I know from discussion with the larger QS firms that they are rolling out revised reports to cater for these changes.

As an accountant I will be seeking QS reports that identify non-depreciable items so continued review for scrapping occurs IF the property is affected. More than ever clear and high quality CGT records need to be maintained for each property and our CGT Record Keeping Tool will be edited soon to update for these issues. The importance of quality CGT records is so important to avoid overpaying tax on a future profit.

 

Couldn't agree with you more Paul - nice seeing you today to chew the fat on this topic today.

 

Thanks, Paul. Great summary.

It has long been a golden rule of ours that it's always worth asking the question. No QS firm worth its salt will give dodgy advice when referrals depend on integrity!*

We have noticed that a lot of people we're talking to--both clients and referrers--are playing things quite conservatively at the moment, even when they don't have to. For example, in cases where the build is still quite recent, in most cases they're still going to have a capital works allowance of $4000 p.a. and up. That's still a good deal for most people, even if it's a little less palatable in the short term now.

Any QS should be able to give some idea of what portion of deductions should be claimable as Division 43 versus Division 40, and to assess immediate viability based on that (for a standard investor scenario).

* (we like to think we're nice, ethical people too)

 

I just received a email from BMT advising that the law has passed....Not quite., It now needs Royal Assent to become law. That may take a few days but seems inevitable.

 

Yep you can see the updates here:

Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 – Parliament of Australia

You can track changes and you get notifications once changes occur.

Hopefully, we never have to use that option again!!!

 

They should add a citizenchip scoreboard and allow sportsbet to run a book on who is next.

I like the absurdity of Lambie is a scot and is gone but she served in the ADF and Barnaby was a Kiwi. Now an American born person who ran NSW down to the dirt wants to take on a former Aussie tennis champ and thats OK.

 

So I purchased an IP in November 2017, 3br house built March 1985, no intention of selling- still worth it for me to get a depreciation schedule done?

The only real newer things look to be a shed build in 1997, air conditioning and kitchen appliances...

 

Yes. Depending on how big the shed is

 

Is a QS worth it?
Nah, I’ll just keep using Fullyluckys home made spreadsheets. Save a couple o hundred bucks!

Blacky

 

4.1m x 6.1m for the shed/garage- i'm not sure I follow on why size matters in this instance?

 

how valuable would it be?

 

My best estimate would be from the contract of sale: $900 to construct in 1994

Overall, my understanding is that:
a) property built prior to 16/09/1987- cant depreciate the building structure
b) exchanged contracts after 09/05/2017 on a preexisting house: cant depreciate fixtures or fittings (and in any case these are of low value

So that for the above situation (mine) or similar, I believe the answer in that instance would be NO- that a depreciation report isn't worth the cost.

Happy if I can be shown otherwise, but after the changes I don't believe I could put anything down as depreciation on my tax return.

 

Probably not worth doing one if that is the case - but are you sure you haven't missed anything?

 

After reviewing the following link from the ATO:
Expenses deductible over several years - borrowing, depreciation, capital works
"A deduction may also be available for structural improvements made to parts of the property other than the building if work began after 26 February 1992. Examples include sealed driveways, fences and retaining walls."

I think my best option is to just discuss briefly with my accountant the cheap garage/shed and a cheap fence both built after 1992, and get my ~$50 back from the tax man for them.

 

There may be more still. Kitchen or bathroom renovations done?

 

The kitchen looks original 1985.

I might be in with a chance with the bathroom having some updates after 1992 but unsure how I would find this one out?

 

The bigger the shed, the more it cost to build (probably). The more it cost to build, the higher the depreciation.

It might be possible to tell from pictures alone. Have you talked to a quantity surveyor yet? Five minutes on the phone would probably resolve the whole thing.

Regardless, I can't see this working out for you from the information you've given (though a look at some pictures might help). If we're talking just a shed/garage, a fence and a bathroom renovated/constructed in the last three decades, your yearly claim will be quite small in the grand scheme of things.

 

Yep I chatted to a bloke named Alan from your company and he came to the same conclusion- appreciated the honesty that QS report not worth it in this instance