Hi knowledgable folk,
I must admit I have been one of those investors who is missing out significantly on depreciation benefits from an IP – an apartment built ~1994ish. When I bought it, the sellers had put in new carpets, new blinds, new aircon etc. I bought it as PPOR and lived for approx 18 months, then moved out and became IP (no subsequent PPOR, but subsequent IPs, aware of the 6yr CGT rule). I repainted and installed a new timber deck whilst living there, but no other improvements/changes that I funded either whilst PPOR or transition to IP.
After converting to IP i started claiming a small deduction for capital depreciation on the building value, as suggested by my former accountant, but made no claims ever for any depreciation in floors/fittings/etc. It became IP towards the end of 06/07 FY.
My current tenants will be moving out sometime in the next 3 months and I am preparing to do some renovations inside the apartment. I completely understand that following the renovations i should pay for a detailed depreciation report on all the changes to maximise tax benefits.My question is – can I (or shoudl I) get a schedule done up PRIOR to the renovations to show the current state, and is it possible to then backdate any depreciations? I have not yet completed the 09/10 tax return… Can I also do an adjustment to previous year's tax returns?
One other factor is that for the second tenancy agreement on the property, my former furniture was returned to the property and rented out fully furnished. So given this furniture was owned by me prior to being for investment use, but then used in IP for income purposes, should I have been/can I now claim depreciations on the furniture?
Meeting with my accountant in the near future to prepare latest tax return, but if the answer is an obvious YES go and get the depreciation schedule now and backdate/adjust then I shall do all this before meeting with him.
Thanks,
Emmahmm, how did you determine building value?
I would suggest you contact a QS and get them to give you a schedule with the values as they would have been back on 07 when it first became an IP – and then maybe again once you do a reno. Maybe you should ring and tell them what you are doing as it may be better to have 2 done if you are replacing items previously reno-ed.
Then you should go back and amend you previous tax returns which you can do for up to 4 years prior.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry. My former accountant just guestimated a building value and put a nominal percentage depreciation on it… He never advised me of any other depreciations, just asked me if i had spent my own money on the place at all, and as i hadn't he never suggested claiming for depreciations of what was already there. hence he is now my FORMER accountant
i was new to property investment and really had no idea. now i'm really trying to build my knowledge and maximise the benefits!!Will contact a surveyor and book in 2 reports, one now for pre-renos and ask for 2007 schedule and then another one post-renos.
Hopefully the new accountant can deal with the adjustments for former returns…
Accountants are not qualified to guess building costs and the ATO won't accept their estimates – hopefully he has under estimated and your QS may help you claim more. You should also discuss with the QS your situation as you may only need one report and it may be better to wait until the reno is done.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks again Terry, for years you've provided good info on here
last question – tips on finding a good QS, other than just thumbing thru yellow pages? ask on here for recommendations for perth based surveyors?
given my situation, i woudl assume i shoudl pay extra and meet the QS on site rather than do a remote one via photos or other budget alternative… i want this one done properly!
There are a few QS guys who hang around here. depreciator.com.au is one of them.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Ive used BMT depreciation with good results before. I think you can only retrospectively claim 2 previous years now.
NOS1
wisepearl wrote:last question – tips on finding a good QS, other than just thumbing thru yellow pages? ask on here for recommendations for perth based surveyors?
given my situation, i woudl assume i shoudl pay extra and meet the QS on site rather than do a remote one via photos or other budget alternative… i want this one done properly!
I have used BMT and they were excellent. (Got their name from reading one of Margaret Lomas'books. She recommended them.) They also have a good calculator at:
http://www.bmtqs.com.au/TaxDepreciationCalculator.aspx
to get a rough idea.
Yes wisepearl it is best to get a QS to visit the property.
Neither the ATO or the AIQS (Ausralian Institute of Quantity Surveyors) support the practice of doing reports remotely despite the plethora of them available.
Unfortunately the price of these still drives a lot of the market.
Hi Neil – as a QS yourself, do you have any additional comments regarding my initial query and whether I'll need to get the QS to visit the site once or twice? ie both pre- and post-renos?
It maybe worth while getting 2 schedules done if you are doing signifficent renovations as the old stuff maybe able to be srapped (meaning immediate deductions on remaining depreciable life of fixture/fittings, as opposed to portioned deduction)
A reputable depreciation specialist will be able to advise if it is finnancially beneificual for you to do this.Sorry got looking at the more recent posts first and your first post is well, so full of info…..
I understand you can redo 4 years of tax returns for missed claims. But that is more a Q for your accountant to confirm.
Will depend on the extent of the renos you plan to do. I would suggest a report once complete would suffice.
Lots of factors at play in your situation there. Your main claim over time is the constructon costs which won't alter greatly before or after renos.
Some talk about "scrapping schedules" which is not an offical term. Scott will have more to add on that issue.
Cheers
Gosh, it's ages since I've been here – someone told me my name was mentioned.
Emma, in terms of redressing things, much will depend on what you have claimed and how up to date your tax returns are. As Neil said, there are a few things in play here.
To answer your question about getting a pre and post reno Schedule done, I would definitley get one pre reno and then keep all the costs for your reno. Make sure whoever does the initial Schedule will update it free.
Re: the furniture. Yes, you can depreciate it. But you would need to arrive at a value for it when it went into the rental property. This will depend on what it cost you and how long you have owned it.
In terms of finding a QS, with your more complicated situation you ideally want one you can have a sensible chat on the phone with. Neil obviously knows what he's doing. So do BMT and Washington Brown. And us – Depreciator.
Scott
i was new to property investment and really had no idea. now i'm really trying to build my knowledge and maximise the benefits!!
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