Tax Depreciation FAQ
Property Investors (incl. bricks and mortar business owners) can improve their cash flow and claim 100’s of thousands of dollars in claims via depreciation (over the life of their property investment).
Mathew, the owner and operator of Build With K speaks with many property investor clients and personally completes hundreds of tax depreciation reports each year. As a resource, Build With K have listed the commonly asked questions and answers below for convenience on the Tax Depreciation FAQ in relation to property investment depreciation and related tax depreciation schedule service.
‘Tax Depreciation Schedule’ / ‘Depreciation Report’ / ‘Quantity Surveyor’s Report’ (a colloquial term).
The aforementioned are all referencing the same thing, but NOT all produced are equal.
Q: What is a Tax Depreciation Schedule?
A: In simple terms, a Tax Depreciation Schedule is a report that details valid tax claims available for property investors (for income producing properties) relating to:
i. Building / Capital Works
ii. Plant and Equipment
Both new and old property can benefit.
A tax depreciation schedule is required to maximise depreciation deductions and allowances for purposes of claims on a tax return.
Q: How much can I claim with a Tax Depreciation Schedule?
A: This can vary significantly with the property investment i.e size, quality, date of construction, capital works expenditure (e.g renovations, extensions, refurbishments, fit-outs etc.), installation of plant and equipment, client supplied furniture etc. On average, Build With K are finding upwards of $400,000 in claims on a ‘typical new 3 bedroom residential property’. With commercial properties often resulting in much more. Review our depreciation results/case studies here.
A comprehensive Tax Depreciation Schedule report would outline the totals, year-on-year of what the property investor can claim (in regards to their income producing property), with appended individualised items of all deductions and allowances.
The best reports would also include various methods of depreciation that would enable the investor to either claim more upfront (including, but not limited to, immediate write-off items) or draw out the claims over a longer period.
Q: How long is a Tax Depreciation report valid for?
A: A particular property may warrant up to 40 years of depreciation. With new works i.e renovations, refurbishments, improvements possibly adding a further 40 years for that expenditure. Construction completion dates and plant and equipment type and dates are a factor.
It is always best to make sure your Tax Depreciation Schedule report is current and up to date in order to make sure you are always claiming the maximum amount of tax claims.
Q: Who can benefit from Tax Depreciation Schedules?
A: Property Investors (residential, commercial, industrial etc.), business owners of ‘bricks and mortar’businesses,
Q: What items can be depreciated?
A: Two parts to this answer:
i. Capital Works: buildings, extensions, alterations, structural improvements.
ii. Plant and Equipment: all applicable ‘ depreciating assets’ i.e assets with a ‘limited effective life’ (residential alone has over 200) e.g blinds, carpets, kitchen appliances etc.
Q: Is my property too old to depreciate?
A: Firstly, there are many factors and some important dates to consider, however it is best to seek advice from an experienced, registered Quantity Surveyor (i.e one who is also a registered tax agent) to undertake the due diligence. This includes the research of the full property history and associated construction works, improvements and plant and equipment. An experience quantity surveyor, with building experience, will also be able to quantify and value any renewed, updated and renovated works that have taken place on the older property, throughout its history and account for the changes over the years in the depreciation report.
Q: I don’t need a Quantity Surveyor for that, my accountant does that for me?
A: ATO Tax Ruling: 97/25 Cl. 27. “Unless they are otherwise qualified, property
Q: Can a property valuer or real estate agent do a Tax Depreciation Schedule for me?
A: Refer to the above. They can no doubt organise to have it done for you by a registered Quantity Surveyor (qualified Quantity Surveyor and Registered Tax Agent), but cannot undertake it themselves. If they are not a registered Tax Agent with the Tax Practitioners Board, this is both illegal and not valid for use with the Australian Tax office (ATO). Any unregistered and unqualified persons undertaking Tax Depreciation Schedules would be at risk of receiving fines and penalties.
Q: My accountant told me I need one, can you help?
A: Your accountant is providing sound advice. A Quantity Surveyor is considered to be the building and construction cost expert in regards to the built environment. According to the Australian Tax Office, (ATO) Tax Ruling 97/25, ‘they (Quantity Surveyor/s) are appropriately qualified’ to undertake estimates and costing for Tax Depreciation Schedules.
Furthermore, as a Tax Depreciation Schedule offers ‘tax advice’, the Quantity Surveyor must also be a registered tax agent. Their fee in this regard will also be 100% tax deductible.
Q: Will I be able to understand the reports (sometimes I get lost in all the facts and figures)?
A: Most reports will include a summary page of all the figures for each financial year, followed by appended breakdowns for all the individual items that can be claimed (around 200 in a residential property). Some individuals may benefit from having the data expressed visually, via graphs and charts so finding a report expressed in this fashion would assist. Build With K offer comprehensive reports that include, summaries, charts, graphs and appended specific details of all the items for user-friendliness. We can also send a copy direct to your accountant.
To note; the Australian Tax Office (ATO) requires the input of the year-on-year totals into the individual’s income tax return only, therefore the task would be as simple as transposing the summary figures into the relevant tax return financial year.
Q: I have never had depreciation done (as a property investor) is it too late?
A: Unfortunately, whereby any period longer than 2 years exists, the claims available in those preceding years would most likely be forfeited.
The good news is, all taxpayers can request an amendment in their previous income tax returns up to two previous income tax financial years. The takeaway, make sure you are current and have an updated Tax Depreciation Schedule.
Q: What effect will the 2017 Budget change to plant and equipment have on my property?
A: Post 7:30 pm 9 May 2017, Budget Night, some property investors may be affected i.e may not be able to claim some components of their property investment. There are exceptions that are best discussed on an individual case=by-case basis with the relevant qualified person, Mathew from Build With K is happy to help here.
Property investments purchased and signed for (contract signing) by the property investor prior to 7:30 pm 9 May 2017 and held by the same investor will be grandfathered, that being, no change irrespective of whether the property was a new build or an existing purchase.
Q: What is the price of a Tax Depreciation Schedule / Price is a purchasing factor, how much would a report cost me?
A: Properties and Tax Depreciation Schedule reports are not all equal.
There are both ‘direct’ and ‘indirect’ factors (and costs to you) relating to both in regards to Tax Depreciation. These factors would, therefore, need to be explored. See below.
Firstly, a Tax Depreciation Schedule report prepared by a Quantity Surveyor (and registered tax agent) is 100% tax deductible.
Direct Factors / Costs (affecting the price of a Tax Depreciation Schedule report):
i) Regarding properties: scope and size have an effect as well as properties having leased/rented out furniture etc.
ii) Regarding the price difference in various Tax Depreciation reports: It should be noted that often cheaper reports neglect certain
In short, as a minimum insist that your property is handled with the care and due diligence that an experienced, qualified and registered Quantity Surveyor can provide, including a ‘physical inspection by the same registered Quantity Surveyor‘. Unfortunately, there are some firms that outsource many processes and procedures to inexperienced, unqualified persons (that by themselves are not qualified to sign off the report).
The REALLY cheap reports, neglect a physical inspection all together and include a ‘desktop/computer’ inspection at best. These reports often request the client to carry to do the inspection yourself and document all measurements, notes and photos and send the info back to sign-off. Most people would see the error here, including the poor professional practice. Furthermore, if these same firms claim to be members of the Australian Insitute of Quantity Surveyors (AIQS), they are in direct breach by requesting you to do the work on their behalf. Such firms would be liable for scrutinising and possible fines.
Save time, money and headaches in the long run, use an experienced quantity surveyor, such as Build With K to assist.
Indirect Factors / Costs (affecting the price of a Tax Depreciation Schedule report):
If a client compromises on a professional undertaking of a Tax Depreciation Schedule report there may be ‘indirect costs’ associated to that. Sadly, sometimes, you ‘get what you pay for. Are you, therefore, willing to compromise on quality and results when a few hundred dollars extra in fees may result in potentially tens of thousands of dollars extra in claims for you (if not hundreds of thousands of dollars, in some instance)!?
It is therefore prudent to establish what one gets for their investment.
Refer to the section ‘In order to maximise your property tax claims and get the best results, make sure to:’
Q: What do you include and what differentiates you?
A: Refer BWK’s Premium Service Guarantee
Generally, it is always best to ask the firm directly as a Quantity Surveyor’s report/ Tax Depreciation Schedule report doesn’t necessarily mean ‘undertaken and completed by a Quantity Surveyor’. Sure it may be ‘signed off’, but it is best to do your homework here.
As a bare minimum (legal requirement), ask for their: qualifications and tax agent status.
Q: How often do I need to order/get a Tax Depreciation Schedule?
A: In order to claim any deductions or allowances, a ‘current’ Tax Depreciation Schedule is necessary. Forty year reports are available. In some situations, the 40 years of depreciation can restart in certain situations.
Additionally, a Tax Depreciation Schedule from time to time also needs to be updated. Properties get updated all the time, due to wear & tear, repair, rejuvenation, updating etc. therefore it is important that all current claims are being claimed. To establish whether your report is current it is wise to ask an expert quantity surveyor, proficient in undertaking the reports.
A second opinion or independent opinion can be of benefit, as not all tax depreciation reports are equal.
Q: Lastly, what is a Quantity Surveyor?
A: In short, they are building and construction cost managers and experts. More information can be found here.
Makes sense? Then feel free to order a Depreciation Report
More about Build With K
Build With K
‘maximising your property investment’
In order to maximise your property tax claims and get the best results, make sure to:
1. Engage an experienced, qualified Quantity Surveyor and Registered Tax Agent (with broad building and construction knowledge) and have them ‘personally’ undertake your job ie. with no outsourcing or delegating to unqualified persons. I.e ensuring that the person signing off the report is the same person undertaking the job.
2. Insist to have the property physically inspected, having the property physically inspected improves finding the items for deductions that are wholly unique to the property and not known otherwise. Adding to this, insist on a Quantity Surveyor (with broad building and construction knowledge and experience) not ‘just’ an inspector (who otherwise may not have either the experience and or qualifications).
3. Check that they are registered with the Tax Practitioners Board (TPB), a legal requirement. As a bonus, also a member of either The Australian Institute of Quantity Surveyors (AIQS) or Royal Institution of Chartered Surveyors (RICS). Both associations improve the standards expected.
“Prior to choosing the service, I didn’t have any concerns, as I felt the process was explained well.
The service has helped me as it generated a great depreciation schedule for tax purposes.
What stood out with Build With K’s service was; their promptness, explicit information and going beyond their duty to provide us with the best possible outcome.
I am extremely happy with the service and as such will be recommending this to my family and friends.”, — Suzi G., Strathmore VIC
To date, Mathew has personally assisted hundreds of tax depreciation clients and found claims accumulating to over $30 million dollars and counting. He is always happy to assist.