Tax Depreciation FAQ

Intro

Find below commonly asked questions in relation to tax depreciation.

Key Terms

‘Tax Depreciation Schedule’

‘Depreciation Report’

‘Quantity Surveyor’s Report’ (a colloquial term and incorrectly used, i.e. A Quantity Surveyor’s Report (QS Report) in the Financial Lending industry related to a completed different document).

The aforementioned are all referencing the same thing essentially

Tax Depreciation FAQ

In simple terms, a Tax Depreciation Schedule is a report that details valid tax claims available for property investors on their investment property (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.

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, BWK Group is finding upwards of $400,000 in claims on a ‘typical new 3-bedroom residential property’. With commercial properties often resulting in much more.

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/ investment 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.

In short income-producing properties. So that would include (but to limited to residential properties, commercial properties, ‘bricks and mortar’ business properties (for both the tenant and landlord).

A particular property may warrant up to 40 years of depreciation (the period from construction). With new works i.e. renovations, refurbishments, improvements possibly adding a further 40 years for that expenditure. Therefore, there would be overlap and an extension of 40 years (due to the staggered nature of entitlements).

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.

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.

Two parts to this answer:

i. Capital Works: buildings (walls, floors etc.), extensions, alterations, structural improvements (referred to as Division 43).

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. (referred to as Division 40).

Firstly, there are many factors and some important dates to consider, however, it is best to seek advice from an experienced, qualified Quantity Surveyor to undertake the due diligence.

This includes the research of the full property history and associated construction works, additions, improvements and plant and equipment. An experienced 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.

We invite you to read BWK Group’s, ‘Is my Property Investment too Old to Depreciate’ article, where we go into a lot of detail and the prevalent miss information in the general public.

Incorrect. Please refer to 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 undertake and provide estimates in the case of Tax Depreciation Schedule work (including Division 43 and Division 40 deductions and allowances).

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.

A second opinion costs, you nothing, listening to initial advice (that may be incorrect) can cost you dearly… We have many examples of this, BWK Group covers tax depreciation misinformation and consequences in our article here.

Our experience of none incorrect information sources have come from accountants, property managers, property advocates as well as quantity surveying firms) Incorrect advice can come from

Your financial success is too important to leave to chance and to those that aren’t fully invested in it, with substantial ‘skin-in the game’.

BWK Group (also registered tax agents), have witnessed first-hand incorrect accountant advice in regards to tax depreciation, which would have cost the client clearly had they not received an expert opinion on the subject matter (from a specialist quantity surveyor).

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.

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 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. BWK Group offers 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.

Usually, never too late. However, some deductions may be forfeited i.e. any period longer than 2 years exists (submission of last 2 income-tax-returns, from the last date of submission), 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.

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. This change directly impacts plant and equipment claims (enacted by the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017).

There are exceptions that are best discussed on an individual case-by-case basis however we have covered this extensively in BWK Group’s, ‘As a Property Investor When Can I Claim for Plant and Equipment’, article.

The good news is that 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.

Another way to look at it is how much will it cost me ‘if I don’t take action and utilise the benefits of a tax depreciation schedule’?

BWK Group average tax savings (potential tax returns) of $608.10 for every dollar spent (fee).

In general, 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.

See next section.

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 critical 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 Quantity Surveyor can provide, including a ‘physical inspection’.

BWK Group offer qualified, quantity surveyor and registered tax agent physical, onsite property inspections for our clients Unfortunately, there are some firms that outsource many (or worse, ALL) processes and procedures to inexperienced, unqualified persons (that by themselves are not qualified to sign off the report). Getting worse, some firms outsource – everything and place a margin on top.

Save time, money and headaches in the long run and use an experienced quantity surveyor, such as BWK Group to assist.

If a client compromises on a professional undertaking of a Tax Depreciation Schedule report there may be indirect costs associated with 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.

In most, case tenants are residing in the property when a physical inspection takes place, BWK handles all the coordinating for access to make the process stress-free. The client does not have to worry here.

Firstly, perhaps our clients are best to answer that, review what our clients say about BWK Group’s services via our Google reviews (here).

Furthermore, BWK Group has extensive construction costing skills from our wealth of experience (from large commercial, big firm, multi-national companies (including many world recognised building landmarks).

We have also been assisting clients nationally and overseas with their entitle tax-write-offs via depreciation, with extensive experience with multiple residential type tax depreciation. We also have a proven track record of finding substantial deductions that others have incorrectly dismissed or denied.

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’, but rather signed-off by one.

Depends. 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.

Yes, you can claim the service of receiving a tax depreciation schedule as a tax deduction.

In short, they are building and construction cost managers and experts in the cost of construction.

Refer to BWK Group’s, ‘What is a Quantity Surveyor (QS) and What Value Does one Offer’, article.

Conclusion

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, feel free to get in touch with Mathew (BWK Group’s Founder/Head QS) We have many happy clients and are considered as tax depreciation experts by many accountants and clients).

To date, BWK Group has assisted hundreds of tax depreciation clients and found claims accumulating in the hundreds of millions. We are always happy to make it possible for our clients to write-off substantial tax, via BWK Group’s tax depreciation service Any further questions.

Get in touch with BWK Group.


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