Visual Evidence of Depreciation Benefits

Discussion in 'Accounting & Tax' started by [email protected], 1st Nov, 2016.

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  1. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Not convinced Depreciation deductions can be seen, felt and measured ?

    The Block is almost wrapped for another year and the good folks at BMT have (again) provided the QS reports. http://www.dailytelegraph.com.au/re...t/news-story/528c1454536b0ae4f6ca90c39b85ad96

    So you have seen the properties and their inclusions and the common areas (which proportionately assist with enhanced tax deductions) for each apartment if they are acquired by an investor. For The Block 2016 thats around $2.1m per unit over 40 years.

    [​IMG]

    Now the $80K a year in Year One deductions inst going to reflect in all investors properties. And yes that number will diminish slightly each year. And Yes, these are $2m++ properties with high end specs. But imagine even a $30K a year deduction. Or just $10K. At a margin tax rate of around 35% thats a big difference to cashflow. A $10K deduction isnt that unusual I must say. And it doesnt cost much to obtain it.

    And Bradley Beer reckons just 20% of investors have a QS report. Thats tragic.

    Source : BMT
     
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  2. Gockie

    Gockie Fully vaxxed Premium Member

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    Really? Wow.
     
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  3. Sonamic

    Sonamic Well-Known Member

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    I get one every single time. Well worth it. Did the calcs on the weekend and my Tax payable is down to just $40 a week. Not my primary motorvation for property, but gee it sure helps. Thanks for the motorvation Kerry. RIP.
     
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  4. BMT Tax Depreciation

    BMT Tax Depreciation Chris Business Member

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    You would think that's hard to believe, right?

    On at least a weekly basis someone will say something to me along the lines of, "My property is ten years old so there wouldn't be much to claim, would there?" That's not even close to unviable.

    And then there are those who proceed with us to depreciate a new build and say something like, "I do have another three properties but they're all 1960s builds so I won't worry about them."

    And then there are those who have been in the investment game for a decade or more but have had the wrong tax advice until they recently changed tax agents ...

    So, file it under "sad but true".
     
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  5. kierank

    kierank Well-Known Member

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    And it is an expense that you don't have to fund with cash.

    Problem with depreciation is that it makes some property negatively geared. Horror! Horror!!! Just joking.
     
  6. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I found ANOTHER 2 new clients yesterday who had owned their IP for three+ years. No QS report. Prior tax advisers didnt say a word. I'm now amending two years. I explain the issue - Suggest they speak to BMT / Depreciator. ...Easiest cash they have made.
     
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  7. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    You know I have had people actually say that as their excuse why they didnt claim depreciation!! They didnt want their property neg geared :) ....I explain it just adds to their cashflow by enhancing tax refunds so its more positive geared than if you dont have a QS report.

    Its so simple some think there is a catch. (Or they are stupid ?) IMO its like burning $50 notes to avoid paying tax on income.
     
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  8. TadhgMor

    TadhgMor Well-Known Member

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    This is astonishing! I'm new to this game and I can't understand why you wouldn't do one for everything you have, how else are you going to know ?

    Something that echos in my head...

    "Assumption is the enemy of truth"

    It rings my bell all the time and makes me search, research and discover which at least gets me to a point where I'm comfortable where the statistical assumption is a minimal point and I have high confidence that what I'm looking at is as close to "real" as I'll get.
     
  9. Depreciator

    Depreciator Moderator

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    I have a confession to make.
    About the 'only 20% of people claim depreciation' figure.
    When we launched our business around 15 years ago, an accountant used to get us to come along to his seminars and talk about depreciation. It was a bit of an unknown back then.
    At one seminar, I asked everyone in the room who had an investment property to put their hands up. Then I said, 'Okay, now leave your hand up if you have a Depreciation Schedule.'
    About a fifth of those people i.e. 20%, kept their hands up. We had a PR person back then and we got her to do a press release saying '80% of property investors fail to claim a huge tax deduction.' It got a run in lots of papers. We put the figure on our brochures. Then other providers and journos started quoting it and it took on a life of its own. I smile every time I see it - sort of like seeing your child out there in the world making his/her way.
    Now that there are so many TV shows on investing, as well as magazines and books and of course places like Propertychat, I suspect a greater proportion of investors (and accountants) are aware of depreciation.
    Having said that, Chris and Paul are correct that lots of people don't do it and like them we speak to people everyday who have not claimed depreciation and are annoyed with themselves and their (previous) accountants.
    Scott
     
  10. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I keep trying to think of a offer we can make that wins three ways. You, me and client. My idea is that if a client does not have a QS report I reckon I can guarantee a better tax and cashflow outcome with one. If I'm wrong my service is free. There would be very few times I lose the bet.

    IMO any tax adviser who isnt pushing clients on this isnt much of a property tax adviser.

    Some are put off by the upfront cost of the report which is generally between $500-$800, but if someone told me a one-off $800 report can payback $5K each year I would bowl you over to get it fast.
     
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  11. Depreciator

    Depreciator Moderator

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    Most Dep Schedule providers won't charge if they don't find more than their fee in depreciation, but it's still a bit of mucking around.
    Then there are the free calculators. They are okay with very simple scenarios, but struggle (even ours) with more complicated ones.
    Our gang at the office in most case can tell people over the phone after a chat how much depreciation might be in a property.
    Scott
     
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  12. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    IMO you guys are the experts. I couldnt tell you what a single housebrick costs. And worst of all are the ******* accountants who prepare a simple depreciation schedule when a client doesnt want to part with the QS fee. I have NEVER seen one that is even close to the actual deductions and its a high audit concern.

    I am always telling investors to call and ask for your opinion. If the QS tells them its not worth bothering then that's when they dont need a QS report. Until then they should bother.
     
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  13. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Tax Tip : A way to spot a tax agent who is NOT property saavy.

    There are often post on PC about how to identify a non-property savvy tax accountant. QS reports can provide a simple way to assist this. Its a matter that a client can easily check too.

    Review your last tax return lodged. Has the accountant included a depreciation schedule in the tax return ? Its often a few pages of tables that transfer the deductions into the rental schedule. Sometimes its two different schedules sometimes its just one. Now that on its own isnt a concern as many investors will install a new over, floor coverings, HWS etc after a QS report. So for additional items after the QS report it is logical.

    What you need to look for is a sign that the tax adviser has re-entered your QS report into their software. Thats the concern. Its like they want to pad out the tax return so it looks complex and expensive. More paper = higher fee ? I see it a fair bit.

    My concerns would be these :
    - They are wasting your money by re entering the QS report into their software. Transfer of a QS report to a tax return may take 30mins. Who paid for that ? I enter the numbers directly off the QS report. Takes under 1 minute.
    - Their method reduces tax deductions !! Low Value pool items cannot be written off and items that meet the criterea for pooling cannot transfer to the pool in their software.
    - They often "batch" assets types into groups to save time on their unproductive endeavours. This can lead to loss of specific asset identification. Write-offs later can be difficult or even impossible to identify.
    - Inconsistency between two methods. This can affect a later CGT calculation
    - Later if you undertake improvements or an extension (ie a GF) they will likely just add the new items. The best approach would be to advise you to get the original QS report updated to write off (scrap) the older items and to add the new items. This accesses accelerated rates and maximises deductions. Remember depreciation is a specialist area of property taxation and its not just a accounting method. Thats the unfortunate result of tax advisers who rely on their software. Its not designed like the quantity surveyor systems that produce the reports.
     
  14. Steven Ryan

    Steven Ryan Well-Known Member

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    Emphasis mine.

    I've had a few clients advised NOT to bother with a depreciation report on their IPs by accountants with good intentions and no idea.

    Worst one this year: 2 IPs, accountant said "don't bother" with either.

    Anyway, they listened to me and now have $65k of depreciation benefits over the next decade. Thanks very much.
     
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  15. Ashby

    Ashby Member

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    I just got my schedule (from BMT) for a typical "won't be many deductions" property. House built in 60s, did not do any reno ourselves. First year deductions are over $5k so net benefit will be around 5x the cost of the schedule in the first year alone.
     
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  16. kierank

    kierank Well-Known Member

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    Like they said in the ad, "I wouldn't leave home without it!!!".

    Last IP I bought earlier this year, I booked the QS prior to settlement and it was done a day or two after settlement.

    Once I got the Deprecation Schedule, I forwarded it to my accountant that same day.
     
  17. Mike A

    Mike A Accountant Business Member

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    always amazes me as well the number of people not aware of a DS. People also think it isn't worth it as the property purchases was finalised last month of the financial year. They forget those low value pool items and immediate write-offs can add up quickly.

    just had a client with 5k worth of such items and the property was finalised second week of June 2016.

    Even less well known are scrapping schedules when renovations are being planned to be done.
     
  18. BMT Tax Depreciation

    BMT Tax Depreciation Chris Business Member

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    My favourite was a very basic new townhouse with a settlement date on the 28th of June. Two days of claiming gave them over $2000 in deductions.
     
  19. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Paid for the schedule in its first two days. The next 39yr and 11.8 mths are a bonus
     
  20. vbplease

    vbplease Well-Known Member

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    Saw the episode of the block where they were estimating the value of each unit relevant for depreciation.. in the order of $2.2m. They didn't show the details of their calcs or BMT's calc's but I would have thought that $2.2m would have included the complete unit including the structure? Isn't the depreciable value only for capital works after 1985? The building was over 100 years old which they completely gutted it and I'm pretty sure each unit didn't receive $2.2m in improvements??

    The thing that bugs me with depreciation is that's reduced off the cost base when selling adding to CGT.. yes you're ahead with the 50% discount, and can be good for cash flow in the meantime, but can be a nasty surprise when selling..