Old Properties can greatly benefit from Tax Depreciation too
All too often we hear from our clients (that luckily received a second opinion) after their accountant, other allied professions (e.g., property manager) or quantity surveying firm informed them that their investment property was too old to depreciate.
According to the Australian Tax Office, ‘Unless they are otherwise qualified, valuers, real estate agents, accountants and solicitors generally have neither the relevant qualifications nor experience’.
By the ATO’s definition, a quantity surveyor is deemed as ‘an appropriately qualified person’.
Fact is, most old properties have been updated, and or improved by way of a renovation (whether being cosmetic or structural). Therefore, in this case, there would be deductions to claim, via claiming depreciation with a tax depreciation schedule.
It usually takes a keen-eyed, informed and specialist quantity surveyor, such as BWK Group, a quick check to determine the benefit to the property investor of their entitled deductions (tax write-offs) on their old property. Such a quick check could be the difference for property investors claiming thousands (if not tens of thousands) of dollars in deductions (tax write-offs) or sadly, the inverse i.e. forfeiting thousands (if not tens of thousands) of dollars in deductions due to incorrect initial advice or neglect (from not receiving a tax depreciation schedule). See our examples later in this article.
A common question by property investors, “Is my property investment too old to depreciate?”
Those property investor’s taking charge of their own financial matters (and or fact-checking for themselves) will end up asking a quantity surveyor, “is my investment property too old to depreciate? “
The particular question is also primarily misunderstood (or completely unknown) and all too often we have seen the bad and really ugly…as we will point out
Again, the short answer is (generally), “no”. No, your property is not too old to depreciate (subject to getting advice from the right quantity surveyor).
The correct quantity surveyor’s advice is key to determining whether a property investor’s investment property can be depreciated or if is indeed too old for depreciation (BWK Group have only had once instance whereby the property was too old to depreciate, and that client was an accountant).
Seeking the right advice from a quantity surveyor should be pursued in a timely, manner. BWK Group frequently assesses, qualify and recommend the benefit to claim depreciation on all property investments including ‘old properties’. With the correct advice, this could be worth thousands of extra tax write-offs that otherwise would be forfeited [we have examples below].
Fact: Most older properties have been altered
Expanding further on an initial mention, the nature of older properties being, well… ‘old’, most have therefore been altered (renewed or updated structural items (e.g., walls/roof) and plant & equipment items (e.g., appliance, carpets etc.) and any possibility to benefit from a property investor’s point of view must be explored. Therefore, it stands to reason that there is a good possibility of deductions (tax-write-offs) for them.
You can claim depreciation on most older investment properties. To what extent of benefit, for the property investor, depends largely on correct, honest and open advice from a quantity surveyor that provides a tax depreciation service.
The Property Investor and Accountants’ impact
We find that many of our enquiries derive from initial advice to the property investor from their accountants.
That feedback either an affirmative that they need a tax depreciation schedule report and to engage a quantity surveyor to assist or (fortunately or unfortunately, depending on the correctness of the initial advice) providing enough doubt in the property investor’s mind to seek out and pursue a second opinion (from a professional that specialises in this area such as a quantity surveyor that provides a tax depreciation service).
Accountants have a very large role to play in the ability for a property investor to maximise their property investment and make sure all avenues of entitled benefits are explored in a timely manner (including the need for a tax depreciation schedule).
Accountants lodge and finalise individual (and other tax-payer entities e.g., Companies) yearly income-tax returns and have multiple touchpoint opportunities to check, provide quality assurance and make sure they are working in the clients’ best interests.
Incorrect Initial Advice on Old Properties:
In regards to accountants and property investor’s relationship with them, more often than not, a property investors first introduction to tax depreciation is from their accountant (usually just before the lodgement of their income-tax returns, sadly).
The reality is anyone that has engaged an accountant is relying on timely and correct advice with anything tax-related. For a property investor client, they must have the conversion about the benefit of depreciation and direct them to a quantity surveying that can make it possible.
Yes, accountancy is a vast field, but by and large, a property investor’s accountant should know how to address the full benefit of depreciation to them (and direct them accordingly to a quantity surveyor in order for them to realise the benefit).
Depreciation on property investments is not new and has been around for decades. Yes, it is a specialised area, but this is an area that the ATO recognises a quantity surveyor to be suitably qualified and expertise in. (Refer to TR 97/25, Tax Ruling by the Australian Tax Office).
Some clients previously had the wrong advice (or worse- not at all) in regarding tax depreciation:
True to any advice, there is correct and incorrect. Some having larger consequences than others…
Review the Case Study below: A property Investor with an Old Property:
One of our clients swiftly changed accountants after their accountant failed to mention his need to obtain a tax depreciation schedule (at all!), already forfeiting $48,823 (with no option to rectify) whilst being on-track to forfeit a total of $559,638 in total deductions (tax write-offs).
We were able to immediately back-date $8,100 and claw back $13,057.
We made it possible for the client to claim a total of $340,270 (clawing back what we could) and setting up the client correctly at the present time and for the future to positively impact their financial position (write-off substantial taxes and improve their year-income-tax-returns).
Again, had the client never received a second opinion (fact check their accountant) with a specialist quantity surveyor, the client was on-track to lose a total of $559,638.
Lucky for them, they found out about BWK Group’s tax depreciation service so we could fix what we could and make sure they will never forfeit or miss their entitled tax write-off opportunities on their property investments going forward.
Sadly, we have many similar case studies whereby the property investor could have been worse off.
Fortunately, with the correct, timely advice from a quantity surveyor, such as BWK Group the risk of financial loss can be mitigated, minimised and the true benefit (of substantial tax write-offs and improved income tax returns) can become a reality.
Quantity Surveyors also greatly assist accountants:
After all, quantity surveyor’s help accountants look great. The truth is, depreciation deductions (from quantity surveying depreciation schedule reports), are usually the biggest deduction on the client’s yearly income tax assessment.
Feedback concurs that some accountants take all the glory when the mutual client receives a very favourable income-tax return (dismissing the actual reality that it was because of the quantity surveyor’s hard work, due diligence and the provision and inclusion of their tax depreciation schedules).
Upon request, BWK Group is always happy to recommend great accountants to our clients (looking for a better solution or service). If you are a client of ours, you can reach us via BWK Group’s Contact page.
This is not a call-out to accountants in general (like any profession, there is always good and bad). Truth-be-told BWK Group also picks up clients from other quantity surveying firms too that have actually provided the wrong initial advice. Refer to our case study examples below.
Some of our Depreciation Case Studies on Older Properties
- Found a young couple $48,754 in deductions on an old strata unit in Fairfield, VIC as a result of comprehensive due diligence and correct advice (following an initial enquiry to a large quantity surveying firm that incorrectly advised that their property was too old).
- Found a Dr. in Camberwell, VIC $37,472 on an unknown extension (not in the Contract of Sale) by conducting thorough due diligence including, but not limited to, using our in-house resources, historical information all in an attempt benefit our client by maximising and uncovering all unknown building works and deductions on the old property.
3 Reasons to receive Tax Depreciation advice on Old Property Investment
- It costs nothing to enquire (or get a second opinion) from a quantity surveyor (offering tax depreciation schedules services).
- If the property investor waits too long (more than two financial previous years from last time of lodgement)) to make an enquiry with a quantity surveyor regarding their property investment depreciation benefit. Previous years of claims are forfeited forever and can’t be back-dated.
- It will cost potentially thousands (if not tens of thousands) of dollars in missing tax write-offs and improved income tax returns) if the property investor does nothing (or assumes that their accountant will handle it).
Investing in property is risky enough, not to fact-check and rely on the opinions of those that are not qualified to do so. We welcome property investors to find out how more about BWK Group or request a Discovery Call.
Are you a property investor?
You need a tax depreciation schedule to write off substantial taxes (in the tens, if not hundreds of thousands of dollars) to improve your yearly income tax return…
If you are a property investor (or representing one) and wish to discuss or get a second opinion on tax depreciation fill in a no-obligation tax depreciation schedule request here.
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