Quantity Surveyor valued home less than actual cost incurred

Hi,

I just got my newly constructed IP valued from a QS for depreciation purpose.

The actual cost of construction was $325,000. (She took the cost breakdown from me before visiting the site).

She valued it $297,000 in her report.

My question is: Is this much difference in actual cost and valuation normal?

I am not complaining but just want to know if this is normal.

Regards
Ravi

 

Maybe she left out items which had no depreciable value eg lawns, plants, etc

 

Is it common to get a depreciation schedule if you know the actual costings? Why not just give the costings to your accountant and let him sort it all out. Save a grand.

 

Depending on the QS it could be as little as $600 I think, and its tax deductible.

Your accountant will most likely tell you to get a QS as it's recognised by the ATO, and won't attract scrutiny I'm led to believe.

 

Needs to be a person recognised by the ATO to do the job. Otherwise the deduction could be denied.

Really, it's around $600 for a proper report by a qualified QS recognized by the ATO. The report is tax deductible as well. IMO it makes no sense not to do it.

I am building an IP. At the end of the build I will call on @Depreciator or @BMT Tax Depreciation based on forum recommendations. There is also a discount if you mention PC. No brainer IMO.

 

I don't see the benefit of obtaining a QS report when ALL costs are known immediately after construction. Technicalities aside, it would be reasonable to assume that you do not need someone to estimate the cost of something when the actual cost of construction is literally known and recorded. I might be missing something though.

What exactly were you hoping for?

Edit Just saw the above posts by Archaon and Perthguy with some reasoning. Still doesn't seem logical to me but a fair point nonetheless and if that's how things work then so be it.

 

Ok actually I'll answer my own question

Use case 1: 'a friend I know' paid a builder to do a granny flat, entire sum in physical cash, for good pricing. No itemised invoice, only cash receipts. QS report legitimises the depreciable asset value.

Use case 2: sometimes you want to see if you can get significantly higher value if you feel you got a good deal.

I guess I was asking if there was any legitimate uses of getting a QS when actual costs are known.

 

Then you'll encounter the same problem in every other situation where you use a QS - when the ATO asks you "hey, you built this, where are the invoices?" what do you say?

 

A depreciation report is more than a list of costs. If that's all it was then I could list the costs in excel and use that for my tax. QS value add when they take known costs and prepare a depreciation schedule. I am happy to pay for this service and the fee is tax deductible. What's not to like?

 

So do you know what to put into what depreciation rate pools?

 

Okay I understand that there'd be value in the deprecation schedule itself. Thanks for the clarification.

 

Hi, I thought I had a good idea when I read a fact sheet about this a while ago. In saying this I'm a beginner and thought a depreciation schedule would be worthwhile only if the house is not brand new and post about 1985 or had renovations. But clearly, I am mistaken. Happy to learn though

 

Asking questions is smart. How else are you going to learn?

 

If you know the construction cost then that is what you are required by law to use.

ATO will only permit a QS estimate as an administrative concession where you are unable to obtain the construction cost. It is a concession, theoretically by law the vendor must supply the construction cost if you purchase a property.

 

Getting back to Ravi's question....
We get asked this all the time.
Ravi, you paid $325K to build the house.
As somebody said, there might have been things like turf in that $325K that can't be included.
Also, in the Dep Schedule that QS gave you, there would have been a figure for the building, EXCLUDING Assets, and that gets written-off at 2.5%pa.
Then there are the Assets which depreciate more quickly. Their opening value would be listed individually on the Dep Schedule that QS gave you. These are additional to the cost of the building.
Scott

 

Cost of construction does not mean the price paid. There are elements of construction which are NOT a construction cost. eg s94 contributions , turf, etc

Profit margin can get excluded too. Likewise own labour is not a factor

 

Thanks for your response.
How can I know what else(other than turf) QS has not included?

Also, if turf (and other non-included items) can not be included in depreciation then can it be counted towards "property maintenance" cost of current year for tax purpose?

All expenditure towards an investment property should fall into one of three buckets:
1. Capital works (calculated by QS)
2. Plant and equipment (calculated by QS)
3. Property maintenance (repairs and interests etc which are tax deductible)

Which bucket turf plus other items altogether worth $28k go?

 

4. Other. Not any of the above.

 

Also, if turf (and other non-included items) can not be included in depreciation then can it be counted towards "property maintenance" cost of current year for tax purpose?
No.

They dont go anywhere. You are confusing CGT costbase and elements that are depreciable. One is less than the other.

Its also like a old AC unit. QS reports says its "worth" $1k for depreciation. Reality is it may well be worthless if it stops working.

 

Council contributions
Professional fees (survey, titling etc)
Water, sewer, power connection contributions