Depreciation Reports - Some Insight

[buzzlightyear]

How do QS's differentiate (or do they) between different quality fixtures and fittings? That is do they take into account the difference in cost between, say for example
1. Miele v Whirpool cooking package
2. Local v imported light fittings
3. A given quality of carpets

or is there just a generic cost in which they use to determine the base costs for depreciation.

[depreciator]

Gee, that's an opening for some self promotion if ever I saw one.

We're a little different from the average QS company.

We don't use a 'generic cost' for assets. We will assess the value of an asset based on what we see. So a Miele stove has a different value from a Smeg, or a St George, or an Ilve or a Gagenau etc etc.

In our reports you will find an opening written-down estimated value for every single asset, so you can check them. You need to bear in mind, it is an estimate.

Let's say you buy a 4 year old townhouse. We need to estimate the value of that oven as of the date you start to rent out the property.

Co-incidently, we had a client yesterday query the estimate we put on a dishwasher. We had estimated its value on the first available to let date at $800. The client had a receipt dated 4 months prior to this for $1,090. (She paid too much). We love receipts - actual costs are always preferred (by us and the ATO) to estimates. She faxed the receipt to us for our records and her report was amended and re-sent in 4 minutes.

Easy.

We can only do this because we have structured our business solely to deal with individual investors.


Scott

[Kiwi Investor]

Scott, how much is your fee and do you have an office on the Gold Coast ??

K

[depreciator]

Yes, we have guys on the Gold Coast (and Sunshine Coast, Tweed Coast etc).

Our usual fee is $715 GST inc.

For forum members, it's $660.

Yes, we're more expensive than some, but cheaper than others.

At least you'll know that our reports are ATO compliant and your accountant won't have to fiddle (at your cost) with them.

And the cost is 100% deductible, anyway.

Regards,

Scott

[Mry]

And trust me, with the shoddy depreciation schedules that I've seen floating around, the worst thing you can do when looking for a depreciation report is to choose one based on price. You need quality.

[Quarol]

We have just bought an invesment IP and a friend said we need to get a quanity surveyor to value it for tax purposes.

My husband and I (I sound like the bloomin Queen) are both on tax free scholarships but will be joining the tax paying work force soon enough.

Perhaps, Depreciator (or anyone else for that matter), you could fill me in about what we need to do and why?

We just spent $20,000 making the place fit to live in and have recently rented it out to international uni students.

Any insight would be appreciated.

Kind regards
Quarol

[depreciator]

Hi Quarol,
In answer to why you would want to claim depreciation, it's a tax deduction so why wouldn't you? Not claiming it would be sort of like not claiming your rates, or interest payments. It's also a 'non-cash deduction'.
But you need to be sure before you commission a Tax Depreciation Schedule that the cost can be justified in terms of your return.
In a really general sense, if the building was constructed post July 85, you will be able to claim depreciation on the building itself. In addition to this there is depreciation on the fixtures and fittings within the building.
If the building was constructed prior to July 85, you can only claim depreciation on the fixtures and fittings.
So you'll need to tell me a bit more about the building. You can e-mail if you'd like.
As for that $20K you've spent 'making the place fit to live', unfortunately you can't claim it. When you sell the place that $20K will help to reduce your capital gain when calculating CGT.
I always maintain that it is better to get tenants into a property and start earning money from it (even at a reduced rate) before doing anything to the property.
Scott

[Ausprop]

Depreciator - you say you service Australia wide... do you have someone on the ground in Perth?

[depreciator]

Yes we do, Ausprop.

One of our guys there likes to travel, too. He's off to Kalgoorlie in the next couple of weeks (we go there 3 times a year) and if we can rustle up enough jobs he'll do a trip down Albany way.

[skater]

How many 'jobs' do you need in an area to make it worthwhile - both for you & the customer?

[depreciator]

It sort of depends on the area and how we travel there - sorry to be vague.

Let's take Kalgoorlie. Getting there involves an airfare, so that bumps the cost up. On the current trip I think we're doing 12 jobs and everybody pays $100 travel. The trip takes place on a weekend as there is a better chance of being able to inspect in Kalgoorlie on a weekend. Out of those 12 jobs, I bet there will be at least 2 tenants who stand us up.

Generally speaking, we can do about 6 inspections in a day.

Port Douglas has a travel charge of around $100 from Cairns, but if we do, say, 4 jobs there, we naturally waive the travel.

The NSW south coast used to have a travel fee, but we now have a QS with a holiday house there and he spends one week a month there so if the inspections can coincide with that week we naturally don't charge travel. This QS also covers the NSW central west (he lives in the Blue Mountains). If we have 6 jobs in, say Mudgee or Orange I think we absorb the travel fee.

One of our Melbourne QSs likes driving, so he's always keen to head out of town. We do a run a couple of times per year to Sale and he does jobs on the way. That trip involves an overnight stay. If we can get 6 jobs I'd say travel would be less than $100 per job.

Bizzarely, last year, our Mt Gambier QS did a regular run to Ceduna - he had a big contract there. No travel fee in that case

All of this changes regularly. We have a someone here whose sole job is to manage our QSs. The boys log enquiries in our system so they know what regional enquiries we have in the system at any given time.

It helps that we have affiliations with some big international groups, so when we get an enquiry about an out of the way area we can make some calls to see what other jobs we can rustle up. Again, we have someone who just manages our affiliates.

This is the best time of year to do this sort of thing - tax time is crazy.

[Quarol]

Generally speaking, we can do about 6 inspections in a day.


Not bad at $700+ each and a nice little earner, if I can quote Arthur Daley.

Cheers
Quarol

[Brizzy Boy]

Now I am a real novice so I will ask this question may sound dumb, had QS in all OK.
Now, later down the track I buy a stove, dishwasher etc. What do I do, just hand receipt to accountant, QS or who?
I understand as soon as I buy IP have QS done but after, what if I replace appliances etc, how does this work, has not happened to me yet but I am sure it will!!

regards
John

[depreciator]

You'd be surprised at how tight the margins are, Quarol. QSs are expensive professionals, as are good support staff to manage them. Add to that the other fixed costs of running a business: CBD space in a city, leases, legals, loads on IT, debt recovery, marketing etc etc etc. It's also an extremely seasonal business - we lose money every month out of tax season because we don't do other QS work to prop us up. All we do is tax work. It's a decision we made 4 years ago that constantly gives me angst.
Six inspections in a day is the easy part. If they're post 85 built properties, the QS then needs to work out a contruction cost (and we don't use the square metre rate method) and value the assets. The report needs to be put together and checked. It is sent to the client (e-mail and post if requested) and their accountant. The accountant is phoned to make sure he/she received the report. Then we address any post delivery questions from the client.
Some jobs run smoothly and we make money. Many don't. On any given job we're dealing with a client, their accountant, a tenant, a property manager, a tenant and a QS. There are lots of opportunities for things to go off the rails. There is one job in Fremantle doing that right now, which is why I'm in the office waiting for a call from the QS so I can call the client. We have a tenant who has stood one of our Perth guys up twice. So that's 2 return trips from Perth. Not a huge trip, but it's hours of downtime. Fingers crossed for attempt 3. There are 27 phone calls logged against that job in our tracking system - calls to the property manager, the tenant, the owner to keep them appraised. I don't even want to know how much we're going to lose on that job.
Anyway, enough of that. I'm just filling in time waiting for that call.

Now, to answer John's question. Yes, you can just give the receipts to your accountant. Or if your QS is sufficiently organised, just give them your receipts and ask for an amended schedule. We get asked to do it all the time. Be aware that if you have been using the Low Value Pool and your existing stove, dishwasher etc are still being depreciated in it, they must stay in the Pool and keep being depreciated. Your new schedule may therefor have 2 stoves in it.

We're launching a new service shortly to take care of this for our existing clients and I'm not sure how to price it. I make make a post now and see what people think.

[sydneycider]

A discount for forum members ? Geez a bit late for the report I got off Depreciator last month, but will have to remember that for the next one.

[depreciator]

The boys here know to give a discount to people coming from this forum and that other one. We also have 'preferred price' arrangements with hundreds of accountants, property managers etc. Sometimes people don't tell us where they heard about us as they're not aware of the discount. Send me your details, and one of the boys will call you this morning to do a credit card refund. It's easy - we do one or two every week.

[Muz]

Hi Scott,

Do you service Tassie? If so which parts ie Hobart, Launceston, Burnie, Devonport?? :)

[Quarol]

You'd be surprised at how tight the margins are, Quarol. QSs are expensive professionals, as are good support staff to manage them. Add to that the other fixed costs of running a business: CBD space in a city, leases, legals, loads on IT, debt recovery, marketing etc etc etc. It's also an extremely seasonal business - we lose money every month out of tax season because we don't do other QS work to prop us up. All we do is tax work. It's a decision we made 4 years ago that constantly gives me angst.
Six inspections in a day is the easy part. If they're post 85 built properties, the QS then needs to work out a contruction cost (and we don't use the square metre rate method) and value the assets. The report needs to be put together and checked. It is sent to the client (e-mail and post if requested) and their accountant. The accountant is phoned to make sure he/she received the report. Then we address any post delivery questions from the client.
Some jobs run smoothly and we make money. Many don't. On any given job we're dealing with a client, their accountant, a tenant, a property manager, a tenant and a QS. There are lots of opportunities for things to go off the rails. There is one job in Fremantle doing that right now, which is why I'm in the office waiting for a call from the QS so I can call the client. We have a tenant who has stood one of our Perth guys up twice. So that's 2 return trips from Perth. Not a huge trip, but it's hours of downtime. Fingers crossed for attempt 3. There are 27 phone calls logged against that job in our tracking system - calls to the property manager, the tenant, the owner to keep them appraised. I don't even want to know how much we're going to lose on that job.
Anyway, enough of that. I'm just filling in time waiting for that call.

Now, to answer John's question. Yes, you can just give the receipts to your accountant. Or if your QS is sufficiently organised, just give them your receipts and ask for an amended schedule. We get asked to do it all the time. Be aware that if you have been using the Low Value Pool and your existing stove, dishwasher etc are still being depreciated in it, they must stay in the Pool and keep being depreciated. Your new schedule may therefor have 2 stoves in it.

We're launching a new service shortly to take care of this for our existing clients and I'm not sure how to price it. I make make a post now and see what people think.

Gee whiz depreciator...if you were a fish....

[Quarol]

...you'd be caught every time.... :)

just joshing, I am sure there are many overheads and costs etc. May your day be smooth today.

Take care
Quarol

[depreciator]

Quarol, I hope today is better than yesterday. That tenant in Freemantle did indeed stand our QS up yesterday evening for the third time. Oh well. The tenant is giving our client grief on a few fronts, so our suggestion is to wait till the tenant moves (or is moved) on.

Muz, yes we do service Tassie, though it's problematic. We have two guys in Launceston, one of whom does the north coast. Queenstown and Roseberry are tough. I've had no luck finding a QS based in Hobart. We naturally go there, but we need half a dozen jobs to avoid charging travel. If you have a property in Hobart, there is a company called Matrix you might call. I don't know what their reports are like.

[Muz]

...
Muz, yes we do service Tassie, though it's problematic. We have two guys in Launceston, one of whom does the north coast. Queenstown and Roseberry are tough. I've had no luck finding a QS based in Hobart. We naturally go there, but we need half a dozen jobs to avoid charging travel. If you have a property in Hobart, there is a company called Matrix you might call. I don't know what their reports are like.

Thanks Scott,

Thats interesting :cool:

All my properties are in Launceston and I've been paying the Matrix guys to travel here from Hobart. Shall keep you in mind for our next QS report (and that cheaper rate!! :D :eek: )

[depreciator]

What do Matrix charge for Launceston? Just curious.

[Muz]

What do Matrix charge for Launceston? Just curious.

Hi Scott,

Last report was March 2004 $770 incl GST. :)

[depreciator]

So we're cheaper than them for a one-off report in Launceston i.e. $660 for you, but they'd be cheaper than us for a one-off in Hobart - I assume their Hobart price is less than $770.

Tassie is interesting. It's by far the least price sensitive market in the country, because there are fewer competitors. Brisbane would be the most price sensitive.

[Brizzy Boy]

Hi Depreciator, sorry during the week I only visit the forum once a day. So my last question was back a bit.
I just have to get this right in my head, "I know I am dumb", I have a stove that is on my 'QS dep sched", is now kapoot and I have to buy a new one. I can still claim on the kapoot stove as well as the new one.
If I hand the reciept to the accountant will he know what % that is tax deductable each year or should I go back to the QS to do an adjustment to the schedule that I have hande the accountant.

regards
John
PS My wife has called me stupid for asking the question, yet she could not give me an answer!!!

hehheh

[depreciator]

Hi Brizzy Boy,

It's one of those things that is far easier to explain over the phone, but I'll give it another go here.

So you have a stove that is kaput and you replace it.

You can't claim the new stove as a 'repair', because it's not.

But you've only written off, say, half the value of the old one. So how do you claim the other half?

Simple, you keep depreciating it.

If you weren't using the Low Value Pool, you could write-off the entire unclaimed portion of the stove because you are disposing of that asset.

But if you are using the Low Value Pool (and 99.9% of investors would be) that original stove needs to stay in the Low Value Pool.

So you will end up with a Low Value Pool that has 2 stoves in it.

It's just one of the Pool rules - probably best not to try and make sense of it.

As an aside, if you buy an investment property and intend doing a decent renovation in a year or so, don't use the Low Value Pool from the start. That way when you toss out the old carpet, stove, air con etc you can claim the undepreciated portion because you are disposing of those assets (that's assuming it's going in a skip/bin and you're not selling it).

If any of the above isn't clear, Mry may give me a hand - I suspect he/she can probably provide a better explanation.

When it comes to tax time, if it's just a new stove your accountant will take care of it. If there were more substantial renovations, they may prefer to get something from a QS. The best one to go to would be the one who prepared the original report.

When we get a client who has added a new stove, they fax us their receipt and we amend their report. It takes literally 5 minutes and the amended report is e-mailed straightaway to them and their accountant. We don't charge for that. If it's more complicated, we charge a $100 admin fee. We are about to launch an on-line facility for existing clients to amend their reports that may cost around $60.

Scott

[Petergm]

Hi Scott,

Do you service Tassie? If so which parts ie Hobart, Launceston, Burnie, Devonport?? :)

Hi Scott,

Muz just got the answer to my question because I was going to ask if Launceston was in the regions that you covered.

Excellent news because I have a couple of proprties here and need a QS on one of them.

I will be on the phone shortly.

Cheers Peter

[Mry]

I have a stove that is on my 'QS dep sched", is now kapoot and I have to buy a new one. I can still claim on the kapoot stove as well as the new one.
If I hand the reciept to the accountant will he know what % that is tax deductable each year or should I go back to the QS to do an adjustment to the schedule that I have hande the accountant.

You don't need to adjust the original quantity surveyor report every time you purchase a new asset in the rental property. There are rules that any decent accountant should be able to apply.

Depreciator has it right. In a nutshell -

Non pooling method - Write off the residual value of the old stove and claim it as a tax deduction. Add the new stove to your depreciation schedule. According to the brand new (http://www.ato.gov.au/individuals/content.asp?doc=/content/46259.htm&page=4&H4=&pc=001/002/002/010/005&mnu=1009&mfp=001/002&st=&cy=1) from-1-July-2004 effective life updates, a stove is meant to last for 12 years which means you can claim 8.33% under the prime cost method or 12.5% under the diminishing value method.

Pooling - Add the new stove to the pool. Thats it. Check this thread (http://www.somersoft.com/forums/showthread.php?t=18597) for more of an explanation on how it works.

[Brizzy Boy]

Myr,Scott,
Many thanx for your help, I have my head around it now.

Regards
John