NSW - Depreciation Schedule for an Unit

Just to validate my understanding, it would be worthwhile to order a depreciation schedule right? Even if it's for a 20 year old unit without recent renovations/capital works?

Assuming the building component is $100,000 over 40 years, that's $2,500 per year of deduction for 20 years, while the report only costs around $600-$800 one off. Or did I understand it wrong?

Is the cost of report immediately deductible?

I have read that all the deductions will come back during a CGT event.

 

My rule = You should seek a QS report until a QS says its not worth it. The QS fee is deductible if the property is let for rent. Your basic assumption is correct. Often higher.

The clawback of past depreciation does reduce the costbase when you sell years in the future. However you will generally be at least 50% better off (as only 50% of the enhanced gain is taxed) but in some cases the tax can be low or even Nil so the issue doesnt manifest AND with enhanced cashflows in a income stream.

 

Thank you, I'm learning so much from this forum.

People may say it's never too late, but I wish I have started earlier.

 

I'd say that's on the conservative end for a 20 y.o. unit, but it's possible. I've seen lower for 1BRs or studios, but not often. It depends on size, quality of original fit-out, scope of common area and other factors.

What Paul says. The CGT "payback" is usually a way for people to talk themselves out of forking out for a depreciation schedule, and only in unusual circumstances would it result in breaking even or worse.

To illustrate it, we looked at a Sliding Doors scenario. It's a bit maths-heavy, but your accountant should also be able to validate anything above.

Depreciation and CGT | BMT Tax Depreciation

 

I have never found a taxpayer adversely affected by claiming any tax deduction. BUT if they were a self funded retiree with very low taxable income the deduction value could be low to $0 in which case it wont save tax. BUT I have also seen people on low income bank accumulating tax losses which carry fwd for value one day

 

Thank you all for your insights.

Does unit generally require a site visit (including going inside the unit)? Or can be remotely estimated?

May have tenants and will require some coordination.

 

The QS will discuss those specifics and the alternatives which may or may not be available

 

It's best practice to view the unit and its common area. You might think that not much has changed, but that's a quantity surveyor's area of expertise. The changes may be minor, but a properly documented site inspection can allow us to push our values a bit more, safe in the knowledge that no audit has ever found against us. Listing pictures and a strata plan can only ever tell part of the story.

We arrange inspections with property managers. They're accustomed to hearing from us and facilitating tenant contact.

 

Hi Pete,

I believe it is definitely worthwhile preparing a tax depreciation schedule for a 20 year old property even without any recent renovations since they are depreciated over 40 years from when they were built.

If the capital works component is 100k in construction cost, you are correct. It is about 2.5k in deductions every full financial year and the report fee is 100% tax deductible and can be lodged during tax time.

 

Thank you for confirming.

 

The report come back with well over $5,000 depreciation per year, it is indeed a worthwhile exercise.

The diminishing value and prime cost schedules have very similar figures, we are free to pick whichever method that produces a better outcome right? And for partial financial year, just calculate days of ownership isn't it?

 

These days there is less issues with choice. A choice usually only applies for NEWLY constructed property as used plant is not eleigible and its the element where the choice applies. . Building works are always prime cost. Generally, a taxpayer should choose diminishing value method where possible as this brings foward more deductions than prime cost. EACH owner can have their own schedule and choose a different method for their respective share on their schedule but this gets confusing.

 

We have a detached granny flat behind our PPOR that I am considering getting a depreciation schedule for. The only problem is that I don’t know when it was constructed. How would a QS calculate the remaining depreciation in this situation where we don’t know when it was built?

 

You've just hit the nail on the head regarding one of the reasons a quantity surveyor needs to do this. A QS has access to a range of information and data that can help us determine the age of a building. The worst-case scenario is that no data is available and we make our professional estimate.

From there, calculating the remaining depreciation is a matter of determining the maximum construction cost that would have been applicable in its construction year, and the rest follows naturally from there.

 

The concessions approved by the ATO limit this type of historical cost review to experienced persons able to consider the property and its age and any changes or mods and to reconstruct a estimate of costs. This short list does include certain types of builders but I findtheir skills and approach lacking and more likley to lead to errors and overstated cost. A builder is also not a registered tax agent and may lack the skills in respect of Div 40 v Div 43. Which the ATO may cast aside.

Accountants certainly have no skills in that area. Nor does a valuer. A value can assess past value not cost.

 

Thanks Chris.
Out of curiosity, what sort of info could a QS use to determine the age of the building? Would it be looking at the time stamps on building materials, using council records, things such as historical satellite imagery (Nearmap etc)?

 

All of the above and more, but council records and plan registrations are the big ones. Our fees include any paid searches we need to perform along the way. For residences, once we go back past 1987 age becomes irrelevant, which is just as well because records are harder to find the further back you go.