Hi all,
I know there are various online calculators such as BMT’s which allow you to estimate depreciation for a property based on a small amount of input, but I was wondering if there are guidelines for how they arrive at these figures? Are they specified by the ATO or similar?
I’m trying to make a spreadsheet which can simply give an estimate of whether a property is a good purchase or not, and I want to factor in depreciation, so I don’t want to use an on-line one. This would just be a quick guide and obviously not full due-diligence, but the more accurate the better.
And obviously once I got the property I would acquire a proper tax depreciation schedule and I am aware that the depreciation estimates obtained would be just that — an estimate.
Thanks!
The rule of thumb is that you should calculate if the property is a goer or not and not depend on the tax returns- this should just be icing on the cake. Since you have not actually purchased it yet- there would be many variables to consider. I would do a “rule of thumb” – include what you can in terms of the calcs but if it does not stack up for you as it is- move to the next property- there are plenty out there.
I can give you the contact details of an excellent broker who will ask you all the right questions on this to get the right answer to your questions if you like.Hi gomez,
The concept that your up against is that whilst it’s easy to give an ‘average’ amount of depreciation for a property of a particular value, giving an estimate of depreciation for a particular property requires a lot more information. For example, if I asked you to estimate my weight given that I’m a 30yo male, the only answer you could give would be a guess at the average weight of 30yo males. It’s the answer most likely to be accurate, but unfortunately.. a pretty useless answer. In your spreadsheet, your primary goal is comparison, so the question your really asking is “who is heaviest out of these two 30yo males?” – which really can’t be answered without more information.
The online calculators give you an average, not an estimate. They’re not based on any ATO guidelines. But if it’s an average your looking for, then go with something like:
1yo house: 2% (of purchase price)
3or4yo house: 1%
10yo house: 0.5%Whilst those percentages might generate a believable figure, it really wont have anything to do with the house that your considering.
There’s plenty of experienced, knowledgeable quantity surveyors here on these forums, who could give you a lot of really good reasons why a formula like this will do more harm than good.
I agree with Rahrahprincess – Depreciation and tax benefit should not be the reason to purchase a place ( tax rules changes…they are now talking about reducing the Negative gearing benefits etc – most likely not going to happen but you never know) –
Depreciation and tax benefit are bonus not the drivers of a purchase- because they can be “created” via renovations etc…Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Well thanks Mike. I have learned so much from all the information here on this web site- but also from my own work and mistakes I guess.
This is a most valuable web site.Thanks for all the great input, much appreciated. And I certainly agree and would never buy a place just for a depreciation allowance. However, when trying to quantitatively determine whether a brand new property is a better investment than a similar configuration but older property with smaller price tag, depreciation does come into it.
(As do many other factors such as number of repairs needed, etc)
A rough guide is all I’m after, so I like the sort of rules that Mr5o1 has given, just as an estimate.
Thanks,
Tim
Only a Quantity Surveyor can complete a depreciation schedule that will be acceptable to the ATO. Companies like BMT provide calculators that will get you into the 'ballpark'. Further info on depreciation and its applications are as follows:
Depreciation can be applied at different stages in a building's life cycle. These include:
Marketing of a new development – Depreciation Estimate
Expert consultation at the initiation stage of a new project employed for the marketing of the property's available tax depreciation to potential investor purchasers. Also, tax depreciation consultation at the feasibility study phase provides an insight into the long-term depreciation projections of a project.
The completion of a new building
A comprehensive analysis of a completed building ensures the maximum number of depreciable items is identified and the deduction is maximised.
The purchase of an existing property
If a cost schedule is not included in the contract of sale documents, Tax Depreciation can revalue the items of plant and equipment based on the sale price. A comprehensive analysis of the building ensures all depreciable items are identified and claimed and that the Division 43 component is established.
Renovation of an existing building
The cost of any renovation or extension can be claimed as a deduction, even when a previous owner conducted the work. A Quantity Surveyor will conduct a search to identify any alterations or additions which may have taken place on your property. A Tax Depreciation schedule should also be effected before a renovation takes place so that existing items can be quantified prior to their removal, allowing you to write off these items as they are removed
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