Building a new investment property
- Thread starter WASP
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depreciation report would simplify much of that.
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rolf
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Ohh let's not bring up excel spreadsheets and youtube videos again.
I agree
Though have read here on somersoft, that it's not required for a new property?
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.
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.
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.
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).There is no itemised breakdown though (should have made a depreciation report part of the deal
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. If you have a complete breakdown (which is rare) then it's do-able, but as westminster said you'll just be adding to your accountant's billable hours (plus, will they do low value pooling correctly? Do they know which items are Division 43 and Division 40?). Call me biased but I'd get an expert for that.
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 !
Are you saying that you can't include builder's margin in the depreciable item? I beg to differ....
Cheerfully retracted: you can in the majority of cases. I was thinking of a situation where the builder owns the land at the time of construction and builds a spec home that you then purchase. In that case you can't claim it.
I do think my other point stands, though. Even if you have all the costs available, for the accountant to separate out Div 43 and 40, and then look up all the effective lives for the latter, and then calculate the low value pool, I think you're just better off (in terms of both room for error and in maximising deductions) to get a specialist to do it.
I agree
Though have read here on somersoft, that it's not required for a new property?
Incorrect. A new QS report EXACTLY what is needed if its new.
Why the shouting Mike ?? I'm 100% with you. DIY / Accountants or informal schedules don't work, and are worth every cent that you didn't pay for them.
I'm an accountant and best I can tell you about dishwashers is mine cost $714 + $129 to install and take away old one. I couldn't apportion a house construction if I tried. I argue if I tried the Tax Practitioners Board may impose a penalty on me. I'm not qualified to give that tax service.
Not shouting. Emphasising. The issue has been raised a few times as to who is qualified to provide estimates on construction costs. Sometimes it gets hidden in amongst things. Yes looks like shouting which is why I didn't out in CAPS but big letters.
Rob - I think your view may mislead some think a tax agent can do something that they aren't skilled/qualified in. Tax practitioners wont be able in most instances to determine the cost of an article that is contained within a single contract price. ie apportion. Very few builders give a breakdown and when they do its usually wrong...They may add an allowance or may only give a appliance cost without fitting. If a client walks into see me I cant determine the cost of the appliances (installed) and what items of Plant & Eqt are present and eligible for depn. I can tell you the rate - sure. But I cant determine the costs. I know jack about construction. For that reason I will always refer a client to a QS.
That's where a QS comes in. They will ask the owner what the cost of the work is and apportion that. Yes I agree they cant use a total project estimate. Actual cost must be apportioned. That only happens when its a acquired property and cost is unknown. Agreed. Generally their efforts don't miss items and maximises the accelerated rate depn and then leaves a balance of Div 43 capital allowance costs.
Q'S must use an estimate for an individual asset item when a cost is contained within a total fixed project cost. They will often seek photo's to determine cost and make allowance for installation costs too. For example a Bunnings appliance is far cheaper than a Miele.
Owner builders are a issue agreed. The cost is that and onerous records result. No installation cost is incurred. Its a rare issue. A qualified builder with a business as an owner builder can avoid this issue also. The warranty issues mean few would want to owner build an IP if cost is material.
