QS Report Warning

Discussion in 'Accounting & Tax' started by Paul@PAS, 21st Feb, 2018.

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  1. Paul@PAS

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

    Joined:
    18th Jun, 2015
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    Location:
    Sydney
    Most owners have QS reports (or should have them). Danger is what they say and appear to permit as depreciation deductions can and will change. Dont assume a QS report means a deduction.

    The change which ends Div 40 (depreciation / pooling etc) from the May 2017 budget means that ALL QS reports whether prepared prior to the budget, ten years ago or a month prior or even after the budget are impacted.

    What do I mean ?

    A change in the use of the property will mean what appears a eligible Div 40 deduction is lost from a point in time. Now when taxpayers come to see me we have / will have very specific guidance in our tax checklist. But not all tax agents will be up on this key issue. And DIY taxpayers may blindly look at a existing QS report and just continue on claiming when the right has been lost.

    Examples of changes that trigger a concern
    • A property which has been a IP becomes the main residence of the owners. For example to reset the six year rule. Future Div 40 if it becomes a IP again are gone.
    • A property which has been an IP is vacant and used rent free by family or friends. And by that it can even be a day.
    • A property which has been a IP and is a holiday let is used for one night by an owner or their family. (Lets be honest its really common...) and in the past it meant a small % of costs became non-deductible. Well for depreciation it now means it ends the Div 40.
    • A property which is an IP is between tenants and the owners travel up to the property to repaint. They stay overnight or a few days.
    The other problem which many DIY taxpayers will face is that even if they do identify they have lost Div 40 deductions from that moment. They need to factor in the new CGT loss they can claim for the deductions they lost.

    So a simple tax law change is far more complex than first considered. And will harm DIY taxpayers more than those who have professional support. They may overclaim deductions and underclaim the CGT loss.

    This law change is part of a long term process to erode depreciation deductions. More and more will fall into the trap.

    My advice to everyone is
    1. Still consult a QS for any property you acquire or which has major renovations. Dont assume the tax benefits are lost or minor.
    2. Annually review each property. If you dont know what triggers a loss of Div 40 then seek professional advice AND make sure your adviser asks the question. Heaps of accounting practices dont use a checklist and assume what was deductible last year is fine for this year.
     
    househuntn, hieund85, qak and 2 others like this.