Qns for a first time Quantity Survey

[Luke]

Hi gang!

I've finally got around to organising a Depreciation Schedule on our IP. This is all new for me (or I would have done it before the tenant was in) so I am asking for some help.

What should I be asking the surveyor?
How can I best improve the report figures?

The IP was our old home, and we rented it out in Feb. It's 50+ years old, so we're only talking about renovations and fixtures etc. I have receipts for some, but much of the work was done by yours truly, so I think I'd prefer his 'blind' figures.

Any thoughts or wisdom would be much appreciated.:D

[geoffw]

Luke,

Walk around with the QS. Anything which is new, tell him/her about. Make sure every new thing is noted.

And a hint from more senior renovators.

Keep the receipts. If the QS is too low, show them the receipts (Oh, I just found this receipt. I thought I'd lost it).

If it's too high, don't worry.

And it MAY even be worth while getting a second QS if you don't like the first. I haven't tried this. But the figures may be worth your while.

Not sure though how ATO would go if you claimed two QS reports.

[Michael Croft]

Hi Luke,

In addition to Geoff's suggestions tell the QS the bare minimum.

eg. put in new switches and power points in all properties which cost about $300. The QS assumes that the houses/units have been rewired so a +/- $3,000 depreciation allowance is given. This has happened EVERY time;)

Another classic is the large stainless steel mixing bowl which cost $4.95 which I converted to a handbasin/vanity. QS put over a thousand dollars on that! It looked good too.

To quote DGG - have fun!

:D

Michael Croft

[Owen]

I just got the latest API magazine in the post and there is an interesting article on depreciation schedules. The author who is from DEPPRO says that the law states you cannot claim depreciation for things you haven’t paid for. This puts a bit of a hole in the idea that you get things cheap or free and them depreciate them as if they are a much higher value (an idea I had always liked).

Later in the mag in the Q&A section a similar question I asked and a different quantity surveyor repeats the same answer – unless you have paid for it you can’t depreciate it.

I like your ideas Michael but will they stand up to an ATO audit? I've just scrapped 2 depreciations schedules after renovations and was going to get a QS back again but after reading this API artivle last night I am now thinking of just plugging in my receipt amounts. Have you ever had an audit and how did your claims hold up?

[Glenn]

Hi Owen,

As discussed by a few of the more experienced investors and accountants here, the depreciation schedules produced by Quantity Surveryors have up until now, been taken as gospel by the ATO.

Whilst I have never had to deal with an audit, I fail to see why an individual officer of the tax office would go against there own standard practice up until now and ask for documentary proof that individual items specified in a Quantity Surveyor's report were in fact paid in full by the person claiming the expense. Even if it wasn't paid in full by the current owner, isn't that what the report is for...to provide the remaining depreciable balance for all fixtures in the property, not the amount paid by the person claiming.

Also, I pay my accountant to advise me on what I can and cannot claim come tax time, not a Quantity Surveyor...

Best of luck Owen, I hope you don't throw in the towel too soon because of the fears and misinformation of others.

Glenn

[Owen]

Hi Glenn,

Don’t worry, I am far from throwing in the towel but if I were you I would take a look at the API magazine article before dismissing it as misinformation. The author has something like 15 years experience as a quantity surveyor and is one of the principals of DEPPRO – pretty good credentials I would say. Regardless of how good your own advisers are and what your account does or does not do for you – you are the one liable to the ATO for the claims you make on your tax return. Check out the article for yourself – the more information the better.

The points the author makes about only being able to claim what you have spent – not what the item is worth – and backing it up with legislation makes for a pretty convincing argument. I’m on your side when it comes to the renovating and getting a QS report to set the depreciation values but as you said yourself “the depreciation schedules produced by Quantity Surveyors have IP UNTIL NOW, been taken as gospel by the ATO”. Who says it’s not going to change? Who’s to say you are not the next on the list for an audit?

It would be good to hear from someone who has made this kind of claim and been through an audit. I know that what can and is being done and what the legislation says can be different in a lot of cases. What I’m trying to figure out in this case is the benefit worth the risk. I did my reno’s to increase the valuations and the rent on my IP’s. I did that and scrapped the previous schedules afterwards and got back most of my renovation costs in the same financial year. So to depreciate what I spent as opposed to an estimated value really is a small piece of the larger pie. It helps the cashflow a bit but wasn’t the purpose of the renovation.

[Glenn]

Originally posted by Owen
Hi Glenn,

Who’s to say you are not the next on the list for an audit?



Please don't put a hex on me Owen...I take it all back :o

I agree that it would be good to hear from anyone that has been audited and used the depreciation schedules which, to their knowledge, valued items higher than what was actually paid.

Maybe some of our illustrious accountants could give some examples.

Glenn

[Owen]

Oops!! No hex intended....the bad karma might be returned in kind :p

[DaleGG]

Hi

The tax office, in my experience in audits, will accept the QS report at face value. Half the time, they are relived and pleased that you have a QS report and don't bother to look too closely at what is in it.

After all, without them having specialist knowledge, which they don't, how can they assess whether or not the values are fair? This is why they approved QS's to provide a report.

Relax. You will be fine.

Dale

[Michael Croft]

Hi Owen et al,

Value is a subjective thing, my s/s mixing bowl vanity looked a thousand bucks.

I can also see the tax auditor coming to an IP screw driver in hand, taking the powerpoints or switches off the walls and then determining if the wiring was new or 20 years old.

Regards,

Michael Croft

[Luke]

Originally posted by Michael Croft
I can also see the tax auditor coming to an IP screw driver in hand, taking the powerpoints or switches off the walls and then determining if the wiring was new or 20 years old.
Michael Croft [/B]

hehehe An auditor with an electricians licence - I'd like to see that

To all who have replied, thank you, that's a lot of help.
I'll let you know how it went after after Friday. Fingers crossed.
Luke

[Ross Sneddon]

Hi All

I have always known of the ATO to accept the QS report.

There was a time when they would accept the reports provided by Developers, Builders, Accountants and Renovators but let's be realistic, many of them "cooked the books" to such an extent that the ATO had to put the foot down.

As has been stated before me " You can't claim for depreciation for something you haven't paid for".

Now that has to be fair go. Sure, if the QS mistakes a $5 mixing bowl for a $1,000 job, then thats a good laugh for you and us and you got away with it.

But what has come through fairly clearly in this thread is the question of "what can you do to pull the wool over the eyes of the ATO and make a buck, many of them and as often as possible.

If you are going to do a reno, have the QS examine the property PRIOR to starting and AGAIN at the conclusion and you can get a pretty good run for your money.

But if you set out to con the QS person and the ATO, all you are doing is ripping off all of us as taxpayers.

I'm not claiming to be some sort of goody goody two shoes but lets look at it. Depreciation is to assist you to put aside funds to pay fot its replacement in the future. Let's face it, if you haven't paid for it, then you're not out of pocket.

Regards

Ross

[paulzag]

What is a stainless steel basin worth?

Say $1,000 at a Home Decoration Store or Interior Designers

Say $500 at a Plumbers Supply Depot

Say $250 at a Wholesales Warehouse Sale

Say $125 at an Importers Clearance

Say $60 at an Export Development Show

Say $30 at a Manufacturers Trade Show

Say $15 off the Assembly line

Say $7.50 as the last one in the sales rep's car.

How much is it worth again?

[Ross Sneddon]

Hi All

I have always known of the ATO to accept the QS report.

There was a time when they would accept the reports provided by Developers, Builders, Accountants and Renovators but let's be realistic, many of them "cooked the books" to such an extent that the ATO had to put the foot down.

As has been stated before me " You can't claim for depreciation for something you haven't paid for".

Now that has to be fair go. Sure, if the QS mistakes a $5 mixing bowl for a $1,000 job, then thats a good laugh for you and us and you got away with it.

But what has come through fairly clearly in this thread is the question of "what can you do to pull the wool over the eyes of the ATO and make a buck, many of them and as often as possible."

If you are going to do a reno, have the QS examine the property PRIOR to starting and AGAIN at the conclusion and you can get a pretty good run for your money.

But if you set out to con the QS person and the ATO, all you are doing is ripping off all of us as taxpayers.

I'm not claiming to be some sort of goody goody two shoes but lets look at it. Depreciation is to assist you to put aside funds to pay fot its replacement in the future. Let's face it, if you haven't paid for it, then you're not out of pocket.

Regards

Ross

[Robert]

Just further to Ross's post about having the QS person in before and after a reno is even better for another reason.

In a QS report they will be able to show what you have removed/replaced from the property and your accountant will be able to write off the remiander of its "life value" in that same year.

ie: Hot water service has a life span of 8 years (approx), if you replace the water heater after 5 years you can claim the remaining 3 years of its life in the 5th year.

Cheers
Robert

[Ross Sneddon]

Hi Robert

Yes, you are quite correct. There are many reasons to have the QS in before and after reno.

I didn't spell it out in full. Thanks

Regards

Ross

[paulzag]

Thanks Robert

That was one of the points not clear in my post.

The cost to you is irrelevant. The market value is paramount.

A $5 mixing bowl may not be available once this one wears out. The market value on Stainless Steel sinks is $1,000 - I've priced them.

It costs $25 to replace a washer. How many washers are in the property? How long before the wear out? Who cares if I know how to change a washer or not? It costs $25 to replace whether I do it or pay a handyman (that's another good reason to not own property in your name -- all labour expenses can be invoiced.

Regards

PaulZag
Dreamspinner

[Michael Croft]

Hi Ross,

Firstly I have never set out to deceive the ATO, if I had put my vanity on the open market for sale it would have fetched about a thousand dollars. To be fair to the QS there was a top and taps too.

Get quotes from 'Fix It' type organisation to have all the power points light switches and fuses replaced in a house and you will find the price comes in the thousands. The QS, like the ATO, makes assumptions.

On a philosophical note - I have paid more tax in my short life than 99.99% of Australians will ever receive in income over a life time. I don't remember getting a disproportionate share of the common good for my efforts and I don't begrudge the tax at all.

Regards, Michael Croft

[Owen]

Originally posted by paulzag
What is a stainless steel basin worth?

Say $1,000 at a Home Decoration Store or Interior Designers

Say $500 at a Plumbers Supply Depot

Say $250 at a Wholesales Warehouse Sale

Say $125 at an Importers Clearance

Say $60 at an Export Development Show

Say $30 at a Manufacturers Trade Show

Say $15 off the Assembly line

Say $7.50 as the last one in the sales rep's car.

How much is it worth again?

Paul,

It's worth whatever increase you can get out of it on your overall property valuation or rent increase. However, according to the legislation quoted in this API article you can only claim what you have spent.

I hear what everyone is saying about the ATO accepting QS report figures but is it everyone so happy to ignore the legislation so easily? I'm all for tweaking the accounting to maximise my returns (and I will be) but if the legislation is published and so well know can it be ignored so easily?

I'm pushing this because I listen to those who have been doing these things for years (I've been on the forum for about the last 3 years) and after researching an idea I decide if it is for me or not. This article in API is the first time I have seen the legislation for depreciation quoted and I'm worried for newbies who think they can act like cowboys and rip the system off when it could all come tumbling down very quickly.

[Michael Croft]

OK Owen, here's the scnario -

I use a QS and they ask me if I have a receipt for the new item; I answer 'no'. The QS then assigns a value to the item which is then used for depreciation purposes.

Question: Am I in breach of the ATO rules?

Regards, Michael Croft

[Owen]

Originally posted by Michael Croft
OK Owen, here's the scnario -

I use a QS and they ask me if I have a receipt for the new item; I answer 'no'. The QS then assigns a value to the item which is then used for depreciation purposes.

Regards, Michael Croft

This question was answered in the Q&A section of the API magazine too. The response was "Why can't you ask for another copy of the receipt?".

The whole gist of it was if you own the property and have replaced an item, there must be a cost. If it cost you $1000 then you get to depreciate that amount, if it cost you $5 you get to depreciate that. I'll check but I'm pretty sure the author (there guy from DEPPRO) said they can only estimate value on a new purchase. If it's a repair or reno then they have to use the real value.

Who do you use Michael because that's obviuosly not the case for you? I use BMT & Assoc. They are excelent so far but I have yet to get them back in post-reno which is why this is of such interest to me. I will check it out with them but I can bet they will say to adjust the existing report using my receipt values. I'll get back to you on what the answer is when I say "I have no receipts, can you please estimate values".

[Michael Croft]

Hi Owen,

You'll forgive me if I don't answer your question about who I use for my QS reports - you are quite right about the cowboys out there and the potential abuse of the system.

The rules do apply to all, but it is in the interpretation that lawyers have a field day;) One must know what the rules are before one can bend them to one's will - with out ending up on the wrong side of an audit! And yes I have had an audit and came through with flying colours, so statistically I should be right for a while.

Regards, Michael Croft

[Owen]

Originally posted by Michael Croft
One must know what the rules are before one can bend them to one's will

You hit the nail on the head here. Your tag line says a lot too. I'm certainly getting better at folding my own parachutes and you have helped a lot in that regard.

Thanks for the chat :cool:

[Luke]

Thanks everybody for your engaging responses to my post.

THe inspection happened today, quite quick - 20-25 minutes for my 3br/1ba house. The inspector seemed knowlegeable, and very efficient. I was surprised how little he did ask me.

Unfortunately I had said a little too much to the receptionist who took my booking, (Before I posted this qn - darn!)
However it sounds like it will still be quite a good outcome. Bonus: Although it's a month to wait for the report, they bill me with the report. That's nice, and different from the usual 100% upfront sort of approach in the IP game.

Thanks again everyone, I'll let you know when I get the report.
Luke

[Desto]

Egad! I just read in a previous post that there is no point in getting a depreciation schedule done on a house if I've not actually paid for any renovations or fixtures that are part of the IP I just purchased.

I was under the impression that if I buy an IP it will clearly have items that will deteriorate over time and will have to be replaced. And having purchased that IP means that I have paid for whatever fixtures and other items that depreciate.

So I just wasted $400 to have a QS do a report for me? :confused:

If that is so, this is truly depressing. I could have used the $400 for more valuable pursuits.

What is more depressing is that I wish DEPPRO whom I engaged to do the QS for me would have informed me of the futility of this report in my particular case. Buyer beware and get fully informed before jumping in and handing over money!

I dread to think what else I don't know! Bugger...

[Bobq]

Desto,

Either you read wrong, or the post was wrong.

You can claim for the depreciable items in the house (light fitting curtains carpets and the rest).

Odds are that it's money well spent ( and if deppro can't get you back their fee, then you probably should demand your money back!

So put on your happy face again. :D

[Desto]

:) , thanks Bob.