Hi
I have three questions in which Im hoping members and readers can help me with:
1. I value the importance of getting a qualified surveyor to prepare a depreciation schedule for my IP (apartment); what I would like to ask for opinions is whether a report which costs A$700+ is any better than a $500+ when all are supposedly qualified surveyors and members of the institute? As Im a new investor, Im no expert when it comes to comparing the reports as they all look comprehensive but the 2 key justification points for the higher priced reports is that competitors may leave out items/not categorise correctly and surveyors are supposedly outsourced/data collectors? How can this be proven?
2. What is the relevance of original purchase price when a depreciation schedule is prepared? I would have thought a surveyor would provide estimates and depreciation would be worked out from that?
3. Is there any value in getting a market valuation for the IP (previously PPOR of 9 years) before selling the property; perhaps Im missing something here but I would have thought that when I sell the property, the CGT would be applicable on the proportion of time held as IP (from original price) so dont necessarily understand the relevance of a current market valuation?
Any thoughts and opinions are warmly welcomed. Many thanks as always
Cheers RC388
1) Go with recommendations. I recommend http://www.depreciator.com.au Used many times. Competitive price, great service.
2) For building depreciation I'm guessing
3)CGT is worked out on buy costs/sell costs (not market value) so can't see the point. It may have been worthwhile getting one when it changed from a PPOR to an IP though..
Hi RC388,
As you are aware the fees for tax depreciation reports range from $99 up to $1,500 and all providers are claiming to get you more than the next person. The products available today vary as much as the fees and if anything the fee is probably the worst indication of quality for a few reasons. Firstly, some organisations provide too much detailed unnecessary information (which confuses the client & their accountant) and hence charge ridiculous fees. Secondly, others supply a product which simply can't be used for taxation purposes and the majority supply a basic report that will satisfy the tax office requirements but will not maximise or structure deductions to increase the cash in your back pocket in the early years of investment property ownership. Put simply some do it better than others.
1. A reputable tax depreciation report should:
– be prepared by an Associate Member of the Australian Institute of Quantity Surveyors (AIQS visit: http://www.aiqs.com.au) who is also a Registered Tax Agent under the Tax Agent Services Act.
– use their own staff for inspections and not sub-contract (if you get audited the current tax legislation doesn't recognise professions such as valuers, real estate agents etc as appropriately qualified to prepare these reports).
– make sure they have a guarantee of at least double their fee in the first years deductions.
– include low value pooling & low cost asset immediate write off.
– include a detailed 20 year projection for all Div 40 assets (plant & equipment – kitchen appliances, carpets, blinds etc).
– include a 40 year projected total of deductions each financial year – the life of the property (a one-off report).
– show a break up of all common area plant & equipment (if it's a strata title property).
– have a guaranteed turn around time from the day of inspection of less than 7 working days.
– be tailored upon the client's inidivual scenario based on settlement date, purchase price etc.
– be pro-rated to assist with maximising the deductions in the first year of income.
– be structured to recoup missed deductions – upto the previous two financial years.
and finally contain both the Diminishing Value & Prime Cost methods of depreciation.It's extremely difficult to prove which firms are doing what, but it's always best to get advice from your Accountant – at the end of the day, they are the person most qualified to point you in the right direction when choosing a tax depreciation report.
2. In regards to the relevance of a purchase price in the preparation of a tax depreciation report – when purchasing an investment property you either buy an established property or have one built. When it is built, you'll more than likely have a construction cost value which will be used to generate the tax depreciation report. This will be split into two sections: Division 43 (capital works or special building write-off) & Division 40 (plant & equipment assets) and your Land Value will be a given. When you purchase an established home your purchase price needs to be broken up into land value, construction cost & expenditure. The land value is a given at the time of purchase, the construction cost is then estimated at the time of purchase and then re-calculated at the original date of construction using building price indices and whatever amount is left over is known as expenditure. The expenditure is then used to increase the value of the plant & equipment assets throughout the home, and therefore increasing your depreciation deductions.
3. The valuation on the investment property should have been carried out at the time when the property first became income producing. This valuation will allow you to calculate the CGT made from the first day on income to when you sell (should you sell).
I hope this helps,
You must be logged in to reply to this topic. If you don't have an account, you can register here.
