All Topics / Legal & Accounting / Real Predicament re: ATO- What would you do?

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  • Profile photo of ijcijc
    Join Date: 2002
    Post Count: 28

    I bought an investment property 6 years ago built in 1986 basically knowing nothing about investing. The building inspector/local builder with many years of experience valued the property and equipment for depreciation purposes. From my recent reading of ATO info he would 'probably' qualify as acceptable to do this. The building has been depreciated over the following years @ the 4% rate. Now I have purchased a second property built in 1992 very simimlar to the first one, just around the corner from it. I have recently learnt about Quantity Surveyors from my new accountant and the need to get a report for the ATO, for depreciation purposes. My investigations show that the recently bought property (1992 built) will probably have the building construction estimated to be approx 40k.
    My problem is:
    The 1986 built property which I've been depreciating for 6 years appears to have been over valued by the building inspector at 80k. Therefore, if I get a QS report on the recently purchased 1992 built property of approx. 40k, I'm afraid of exposing the overinflated valuation of the first one, which is actually older! I don't know if this is an incongruence the ATO would even pick up on however I don't wish to incur the wrath of the ATO either :) Any advice appreciated.

    Profile photo of Mr5o1Mr5o1
    Join Date: 2010
    Post Count: 107

    Hi ijc

    Personally I dont think you have anything to worry about.

    The tax office will have already benchmarked your `86 property against other comparable properties, I daresay if the high depreciation was going to flag that property for audit, it would have happened already. Inclusion of another property in your tax return will not bring further scrutiny to the first. The fact that dep’n on your `86 property is twice that of your `92 property does not in itself mean the value of the prior has been overestimated.

    That said, even if you were audited, I still dont think you have anything to worry about..The specific criteria for doing that kind of valuation is:

    If you purchased the property and do not have a record of the construction costs – for example, where the vendor did not provide them – you will need to obtain this information from an appropriately qualified person. This could be a:
    -quantity surveyor
    -clerk of works, such as a project organiser for major building projects
    -supervising architect who approves payments at project stages
    -builder experienced in estimating construction costs of similar building projects.
    see the “where do you get the information” section, down the bottom.

    So you tick the boxes there.

    even if the Tax office amended that valuation to $40k.. You’ve claimed $19200 in depn in the preceding 6 years based on the $80k, so that would be altered to $9600. So if you were in a 30% bracket you’d be up for $2880 in tax over the past 6 years. No penalties would be applied because you weren’t trying to misrepresent the situation to avoid paying tax, you simply made a mistake. Interest would be applied, but if you stated your case (as above) I’m certain the tax office would remit that too.

    So worst case scenario your up for ~$3k … not pleasant, but not going to put you in jail either.

    As there’s only a couple more years left on that depreciation schedule.. I’d just carry on with it.

    Disclaimer: I dont speak for the tax office, cant guarantee they wont audit you (however unlikely) or that they wouldnt apply penalties & interest (even more unlikely)

    Hope that puts your mind at ease!

    Profile photo of ijcijc
    Join Date: 2002
    Post Count: 28

    Hi Mr501- thanks heaps! You have contributed helpful advice to my posts previously as well, and I really appreciate it. At least now I have some perspective on the worse thing that can happen, which isn't as bad as what my imagination had in store for me :) I'll just take the risk with getting the QS Report done on the new property, and proceed as normal.

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