After much initial angst back in May, we have seen little difference in investor demand for depreciation schedules, with schedules requested from Capital Claims Tax Depreciation to be greater over the May - September period than compared with the same time last year. Why so?...
Remember, there are still no legislative changes proposed for:
If you purchased an investment property and it exchanged prior to May 9 2017, you are not affected at all by the proposed changes.
The only properties affected by the proposed changes are properties that exchanged after May 9 2017 and are held by individuals and small trusts including self-managed superannuation funds. But there are still financial advantages to having a quality depreciation schedule for your investment property.
Importantly, investors are still able to claim capital allowances under Division 43. Division 43 deductions (known as the "building" component) are often still significant, especially for properties up to 30 years of age, or for any property that has undergone capital improvements or additions (renovations, rooms/garage/deck additions). Most older properties will have undergone significant improvement over the years and much of this work will still qualify and need to be costed by a quantity surveyor.
There appears to be a misconception that there is no longer any benefit in valuing the second hand Division 40 assets of a newly purchased investment property. Whilst the depreciation of these assets is no longer immediately claimable for investors, the value of the depreciation of these assets does become important when calculating capital gains tax at sale. These are property expenses that have not yet been claimed and can be deducted from the capital gain and help to reduce tax payable once the property is sold. With changes to CGT discounts being considered by government investors should be looking to maximise all deductions available to them at every stage of the investment property lifecycle.
If you are not sure of the depreciation deductions you can claim on your investment property get in touch with the Capital Claims Tax Depreciation team for a free estimate. We will consider the purchase date of your property, it's age, works completed over time and the time you have owned the property to advise a reliable estimate of deductions. This will allow you to make an informed decision for your circumstances and to discuss further with your accountant if necessary.
Depreciation is not calculated from the purchase price (or a proportion of the purchase price), nor is it calculated from a valuation of your investment property. Depreciation is calculated based on the professionally estimated construction costs of a building and it's assets, as at the time it was built. Renovations and additions are costed as at completion or installation. Construction costing incorporates preliminary fees, professional fees and installation costs of assets. Quantity surveyors are one of the few professions recognised by the ATO to calculate constructions costs for this purpose. The ATO does not recognise construction estimates provided by accountants or real estate agents.
Quantity surveyors who are providing depreciation schedules need to have appropriate tertiary qualifications as well as be registered as Tax Agents.
Mark is an expert quantity surveyor, business owner, public speaker and property developer. With 20+ years experience in the construction and quantity surveying industry Mark’s specialist expertise have been sought in consultant capacity by professional bodies such as the National Institute of Accountants and the National Tax and Accountants Association, and he has presented at various property and tax seminars and expos nationwide. Mark holds a Bachelor of Construction Management from the University of Newcastle, is an affiliate member of the Australian Institute of Quantity Surveyors and a Registered Tax Agent.View all posts by Mark Wilkins