Tax Depreciation FAQ
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.
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.
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, leasors, leasees of businesses with own supplied fit-out/plant and equipment including furniture etc.
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.
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 valuers, real estate agents, accountants and solicitors generally have neither the relevant qualifications or experience”, to provide estimates in the case of Tax Depreciation Schedule work.
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 good 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.
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.
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 factors, that in our opinion, otherwise greatly affect the outcome of a favourable client’s tax depreciation results. 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.
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 investment fee extra may result in potentially tens of thousands of dollars extra in claims for you (if not hundreds of thousands of dollars, in some instance)? Remembering you can get up to 40 years of depreciation.
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: Okay, so what do you include and what differentiates you?
A: [Directly, see below i.e ‘In order to maximise your property tax claims and get the best results, make sure to’].
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.
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
Makes sense? Then feel free to order a Depreciation Report
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Tax Depreciation is an expert field so we hope that the Tax Depreciation FAQ was of benefit and provided some clarity for your situation. However, If you would like to get in touch and use the personal service of an experienced Quantity Surveyor/Registered Tax Agent, contact Mathew from Build With K.
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.
Ready to start paying less tax and improve your cash returns?
Engage a fully qualified and experienced expert (registered Quantity Surveyor) to personally assist from start to finish, that has also assisted hundreds of other clients and found them close to $30 million dollars in claims to date (and counting).