Cheap Depreciation reports. Cost you [e.g $63,182 and $58,404]

An existing client reached out to us, wanting a review of some existing depreciation reports that were completed by another provider (prior to them becoming a client of ours).

This client was very pleased with the work that was conducted by us previously and we were thankful for the opportunity and the trust that they placed in our service to provide some honest feedback.

The response from us was, happy to review and if we can honestly improve it- we will.

The client had previously paid very little for the depreciation reports.

On the first view of the reports we instantly established that those reports were not undertaken by a quantity surveyor at all (we could tell by the methodology adopted in arriving at the deductions), furthermore, there was no quantity surveyor sign-off, or tax agent details listed anywhere either among many other errors and omissions??

The methodology used, in simplistic terms, basically went like this; purchase price of $’x’, therefore capital improvements equals $’y’. (i.e ‘y’ being the component that can be depreciated).

Quantity surveyors never use this approach as they ‘build up the cost’ (by measuring, pricing and estimating the components) from the first principles, not top-down.

Let’s provide a top-down approach and identify where the error lies. Two identical buildings, next to each other/built adjacent, two different land plots sizes would result in two vastly different building costs. This logic doesn’t stack up and would provide inaccurate building cost data and if audited perhaps some fines??

Revisiting the requested reports for review, upon re-doing and completing the newly issued depreciation reports by BWK Group, deductions were improved by $63,182 (total $220,615) and $58,40 (total of $221,325) by using principles adopted by a quantity surveyor.

The client was very pleased, had they continued to use their initial depreciation reports (done by others), they would have been worse off $63,182 and $58,404 .

Tax depreciation report amendment2 1
One of the amended reports by BWK Group fixed ($ 63,182 improvement)

What is the takeaway? Perhaps place the value of service in direct comparison to what is at risk?

Ask yourself:

How much did I pay for my investment property? Is what I plan to spend on service relating to the property valued in the same regard?

How important is it to me that I spend money where it needs to be?

Oftentimes property investors will spend a lot more on their investment property insurances every 2 months (in comparison to what a depreciation report would cost them). Insurance premiums cost the property investor year in. Year-out. When does one see the benefit of an insurance policy?? Hoping never and so do insurance companies)…

Not saying property insurance is not important. Just identifying a typical yearly outflow of cash for a property investor.

Depreciation schedules on the other hand usually have a one-off fee to the taxpayer (property investor), can last up to 40 years and the value and return on investment is evident every year, upon the taxpayer’s income tax notice of assessment.

We have had clients report $10,000 in tax refunds due to our work on their depreciation reports (not saying this is a typical example, but happy for that client nonetheless). The known is that the taxpayer (property investor) can expect up 40 years of significant tax deductions and improved tax returns, for the life of their depreciation report.

Please be mindful that ‘cheap’ has ‘costs’.