Follow along with the video below to see how to install our site as a web app on your home screen.
Note: This feature may not be available in some browsers.
I agree
Though have read here on somersoft, that it's not required for a new property?
If you build a new investment property what documents do you need at tax time for depreciation purposes?
If you actually build the property then there are no estimates.
A registered tax adviser can divide the costs between depreciating assets, capital works and other expenditure.
TR 97/25 concerns the situation where a purchaser is not provided with original construction costs, even though the vendor is required to provide this by law. Then as a concession, the ATO will accept estimates by a qualified person in the construction field such as a quantity surveyor. However, any advice such as rates of tax depreciation (i.e. a schedule) will require a person to be a registered tax adviser.
There is no itemised breakdown though (should have made a depreciation report part of the deal ). Builders probably don't give you exact breakdowns as you can then compare items and see profit margins (though they would be getting bulk discounts).
If you build a new investment property what documents do you need at tax time for depreciation purposes?
Yes, and this is where Rob G's suggestion doesn't work a lot of the time. If you pay the builder a total installed cost then it will likely include a margin that is not depreciable.
Are you saying that you can't include builder's margin in the depreciable item? I beg to differ....
I agree
Though have read here on somersoft, that it's not required for a new property?
As discussed in a previous thread accountants CANNOT estimate construction expenditure. It would be a breach of the ATO ruling for which an accountant/registered tax agent could lose their license. This has been discussed in length in the other thread. Get a depreciation schedule. If your accountant says they can estimate construction expenditure they are wrong.
Who says you cant calculate your own Division 43 capital works deduction. The ATO. You might want to read TR 97/25 http://law.ato.gov.au/atolaw/view.ht.../NAT/ATO/00001
At paragraph 23 - 31 it states
23. Subsection 262A(4AJA) of the 1936 Act operates upon a disposal, by way of transfer, of capital works begun after 26 February 1992 and in respect of which deductions have been allowed or are allowable under Divisions 10C or 10D of the 1936 Act or Division 43 of the new Act. Broadly stated, it requires the transferor to provide the transferee with information that enables the latter to determine any entitlement under Division 43.
24. It is not always possible for the purchaser of a building to establish the actual cost of the building, particularly in circumstances where the builder or previous owner becomes bankrupt or is not able, for other reasons, to provide the information. In those circumstances, we accept a building cost estimate by an appropriately qualified person.
25. We consider that an appropriately qualified person has expertise in the calculation of building construction costs and is likely to be accepted by a court or tribunal as an expert witness on the issue of calculating the cost of construction of the particular building. That expertise may have been acquired through a course of study or through relevant experience in providing building cost estimates over a significant period of time.
26. The attainment of relevant professional qualifications or recognition by an appropriate professional association or organisation is indicative of expertise in this field.
27. Unless they are otherwise qualified, valuers, real estate agents, accountants and solicitors generally have neither the relevant qualifications nor experience to make such an estimate.
28. Appropriately qualified people might include:
- a quantity surveyor, who has expertise in the relevant type of construction;
- a clerk of works, such as a project organiser for major building projects;
- a supervising architect who approves payments at each stage in major projects and who may approve individual payments to subcontractors in smaller projects; or
- a builder who is experienced in estimating construction costs of similar building projects.
29. The question of whether a person has the required expertise is an issue of fact in each case.
30. We do not accept the use of published building cost guides to estimate the actual cost of construction, unless they are used merely as a guide by an appropriately qualified person. Building cost guides typically provide a cost per square metre of a range of building projects, based on industry averages. They are not sufficiently specific to the particular building being valued.
31. Building cost guides also include a reasonable profit margin for the builder. However, the builder's profit margin does not form part of the construction expenditure unless the original construction was commissioned from a builder whose charges for the work included such a profit. Where the original construction was carried out directly by the then owner, or by that owner using trade subcontractors and perhaps an architect, no such builder's profit was incurred as part of the capital expenditure on construction.
So unless you fit into one of those categories then you can't estimate the capital works deduction as it is a breach. Penalties 95%. Intentional disregard 75% plus 20% uplift penalty. That would well and truly wipe out the cost of obtaining a schedule.
Whilst it's not strictly necessary it will take your accountant ages to pull it all apart and put costs down to each item. And they will charge you for that time. The construction part is pretty easy for them to do it's all the extras like air con, dishwashers, ovens, alarms, clothes lines blah blah turnkey parts which are trickier.
Better to spend the money and get a proper depreciation report that your account can then use in 5 mins.
If you are an owner/builder and incur construction expenditure then that is what the cost is. There is no room for estimate.
TR 97/25 is about paying somebody to build or else purchase a building. Here, as a matter of administrative concession, the Commissioner will accept an estimate from a qualified valuer.
This is because the vendor or spec builder is unable or unwilling to comply with their legal obligation to provide you with the required breakdown.
It is cheaper to rely on TR97/25 and engage a QS for a breakdown than to take the vendor/builder to court !