Built in Robes - capital works?

[MelbGal]

Hi everyone,

We recently installed some BIRs into an IP and our schedule has them listed as capital works improvements with an effective life of 40 years.

I know that the legislation keeps changing but this seems crazy that BIRs costing only $5000 have a life this long and therefore we can only claim 2.5% p.a.

It also looks like fencing and kitchen cupboards are the same.

Is this correct or is there any way around it?

Thanks

 

[depreciator]

Built-in and attached to the building? It means they are part of the building i.e. 2.5%. Like kitchen cupboards, bathroom fitout etc.

Freestanding stuff can be written off more quickly.

 

[MelbGal]

Built-in and attached to the building? It means they are part of the building i.e. 2.5%. Like kitchen cupboards, bathroom fitout etc.

Freestanding stuff can be written off more quickly.

Thanks - I had a feeling it was correct but was hoping for some loophole

 

[Paul@PFI]

Paul

If its a fixed item its part of the building. Kitchens, vanities etc. Strangeley a sprinkler system isnt but I wouldnt want to move it. the kitchen is wierd. Tiles and electricals in the walls are depreciable. The cabinets aren't. A free standing wardrobe would be depreciable.

Tax doesnt have to make sense.

Paul

 

[westminster]

If its a fixed item its part of the building. Kitchens, vanities etc. Strangeley a sprinkler system isnt but I wouldnt want to move it. the kitchen is wierd. Tiles and electricals in the walls are depreciable. The cabinets aren't. A free standing wardrobe would be depreciable.

Tax doesnt have to make sense.

Paul

hey Paul - massive typo in your web address

 

[Jake D]

Thanks - I had a feeling it was correct but was hoping for some loophole

The loophole is that you can scrap it.


[I think. I know nothing about anything about depreciation, I just pay for the schedule then hand it over to the accountant]

 

[syba]

What I would call a "built-in-robe" (ie a room with some shelving, rails, etc) is definitely capital works. However some "wardrobes" may be called "built-in" but in fact are classed as a "freestanding" wardrobe and are depreciable.

Basically, if one end of the wardrobe is free standing (ie is a wardrobe panel, not a framed up or permanent wall), then it is called freestanding. Even though it gains support from the surrounding walls and in fact cannot stand up without the walls being there, it is still depreciable.

The simple test to determine if it is depreciable is - can a reasonably handy person disassemble the wardrobe and reassemble it in another room (and be only supported by the building at back wall and one end wall) and not damage the building by doing so (apart from some cosmetic damage from screws, etc). If so, then it is depreciable.

Likewise, if you dispose of an old "freestanding" wardrobe, you can write off the balance of the depreciation in the year of disposal.

Hope that helps working out if it is depreciable or not.

 

[GaryT]

If its a fixed item its part of the building. Kitchens, vanities etc. Strangeley a sprinkler system isnt but I wouldnt want to move it. the kitchen is wierd. Tiles and electricals in the walls are depreciable. The cabinets aren't. A free standing wardrobe would be depreciable.

Tax doesnt have to make sense.

Paul

Tiles, electrical wiring and sprinkler systems depreciable (i.e. not capital works)?

Not according to the ATO rental properties booklet - Table 3!

 

[MelbGal]

Thanks everyone for your responses. Very helpful.

 

[syba]

If its a fixed item its part of the building. Kitchens, vanities etc. Strangeley a sprinkler system isnt but I wouldnt want to move it. the kitchen is wierd. Tiles and electricals in the walls are depreciable. The cabinets aren't. A free standing wardrobe would be depreciable.

Tax doesnt have to make sense.

Paul

FYI, everything noted by Paul is generally not depreciable, with the exception of a free standing wardrobe.

 

[Tillie]

What I would call a "built-in-robe" (ie a room with some shelving, rails, etc) is definitely capital works. However some "wardrobes" may be called "built-in" but in fact are classed as a "freestanding" wardrobe and are depreciable.

Basically, if one end of the wardrobe is free standing (ie is a wardrobe panel, not a framed up or permanent wall), then it is called freestanding. Even though it gains support from the surrounding walls and in fact cannot stand up without the walls being there, it is still depreciable.

The simple test to determine if it is depreciable is - can a reasonably handy person disassemble the wardrobe and reassemble it in another room (and be only supported by the building at back wall and one end wall) and not damage the building by doing so (apart from some cosmetic damage from screws, etc). If so, then it is depreciable.

Likewise, if you dispose of an old "freestanding" wardrobe, you can write off the balance of the depreciation in the year of disposal.

Hope that helps working out if it is depreciable or not.

Just wondering does the same rule about freestanding vs built in (reasonably handy person can disassemble the cabinets) apply to
Ikea's or other flat pack kitchen cabinets?

 

[syba]

Just wondering does the same rule about freestanding vs built in (reasonably handy person can disassemble the cabinets) apply to
Ikea's or other flat pack kitchen cabinets?

No. Kitchens are part of the property's "setting". Ie, you can't rent a property without kitchen cupboards so they form part of the building. You can depreciate a freestanding wardrobe as it isn't essential to rent a property with a wardrobe.

Essentially you can depreciate things that are not an essential part if the property and is relatively easy to remove and relocate without damage (eg blinds). Or if it is an item of plant or machinery (eg an oven)

That's the basics of determining if something is depreciate or not. Is simplifying it a bit, but a good start.

 

[marks]

I like the freestanding definition though. Sound like every built-in which is available aftermarket. (excepting walk in robes). It this the case if the freestanding robe goes to the roof? (ie. the panel doors at the front from floor to ceiling with no "roof").

What are the depreciation time period for this then? In the same FY or only if they make the low value pool cut off levels.

 

[syba]

I like the freestanding definition though. Sound like every built-in which is available aftermarket. (excepting walk in robes). It this the case if the freestanding robe goes to the roof? (ie. the panel doors at the front from floor to ceiling with no "roof").

What are the depreciation time period for this then? In the same FY or only if they make the low value pool cut off levels.

Same applies to those robes. They have a life of 13 1/3 years. Low value pools, etc also apply.

 

[Paul@PFI]

Then the quantity surveying industry have it wrong ?? Maybe I should have written a few pages to impart full explanation. LOL this isnt the Master Tax Guide or a CPA module. The issue can be different depending on common property v's own property too. I always rely on a qty surveyors schedule and wouldnt try to DIY my own schedule other than minor new costs. Even then if its major improvts its better to have them review the schedule to identify CA cost base adjustments / Depreciable write-offs and new claims.

Electrical wiring installed to an appliance forms part of its cost base and that cost is depreciable and is NOT subject to CA over 40yrs. Ditto fire alarms, fire exists etc. general wiring sure. The schedules I use dont show a $900 oven they show $1500 as these costs are integrated. Hate to see the poor schedules some are using based on replies here !!. So all flooring is capital allowance cause its fixed??..No. Cost of flooring and soundinsulation and fitting it all is what is depreciable.

Tiles, electrical wiring and sprinkler systems depreciable (i.e. not capital works)?

Not according to the ATO rental properties booklet - Table 3!

 

[syba]

I agree and disagree with Paul's comments.

Firstly I agree that you should always get a qualified QS to prepare a depreciation schedule for you, but it is also useful to have a background knowledge so you can make you own mind up if it is correct or not. As much as I'd like to say all QS's do a great job, I must admit the reality that it isn't always the case (but is the same in any industry - accountants, lawyers, builders, etc). I would only ever recommend doing your own depreciation for something that you have paid for separately and know the full cost (eg in this instance a wardrobe).

Secondly I disagree that wiring is included in the cost of a depreciable asset. Whilst you need to include the TOTAL cost of installing it - such as supply, delivery, labour and sundry materials, you're not necessarily allowed to claim everything - eg wiring. Wiring is specifically excluded, but the cost to connect the appliance to the power cable is included. Eg if you have a gas oven and replace it with an electric oven and need to install a new circuit, the cost of the new circuit is part of the building (2.5%) and the oven and it's installation is depreciable. Many other things Paul noted as being depreciable is incorrect, but you should refer to a qualified QS if in doubt.

With depreciation there are a lot of variables that can change if something is depreciable or not. A trained QS should know all of this and can legitimately maximise your depreciation allowances. By doing it yourself (except for a few things you've paid separately yourself), you won't be doing yourself any favours as you will typically be missing out on much more depreciation than the cost of getting a report prepared.

The advice I have given earlier is purely for that item. I strongly urge anyone not to prepare their own deprecation schedules other than some improvements done themselves.

On a brighter note - happy depreciating!!!!

 

[Rob G.]

Whilst the Commissioner usually exercises discretion for minor and incidental extension wiring to install plant, structural changes such as adding power sockets and wiring to part of a building is settings in 99.9% of cases.

Cheers,

Rob

 

[GaryT]

Then the quantity surveying industry have it wrong ?? Maybe I should have written a few pages to impart full explanation. LOL this isnt the Master Tax Guide or a CPA module. The issue can be different depending on common property v's own property too. I always rely on a qty surveyors schedule and wouldnt try to DIY my own schedule other than minor new costs. Even then if its major improvts its better to have them review the schedule to identify CA cost base adjustments / Depreciable write-offs and new claims.

Electrical wiring installed to an appliance forms part of its cost base and that cost is depreciable and is NOT subject to CA over 40yrs. Ditto fire alarms, fire exists etc. general wiring sure. The schedules I use dont show a $900 oven they show $1500 as these costs are integrated. Hate to see the poor schedules some are using based on replies here !!. So all flooring is capital allowance cause its fixed??..No. Cost of flooring and soundinsulation and fitting it all is what is depreciable.

Yes this is not the Master Tax Guide but it would be useful to provide a suitable reference when making contentious statements.

No - all flooring is not subject to the capital works deductions - just those that are fixed to the floor such as tiles, cork, & parquetry. Floor covering that are not fixed would be depreciable assets i.e. carpet, vinyl, and floating floors. In the case of tiles these are attached to the floor and would cause damage if removed. They form part of the surroundings and setting of the building and, therefore, are not regarded as separate depreciating assets. One of the basic tests is if it forms an integral part or a part of the fabric of the building.

Similarly electrical wiring is capital works. Your contention that any internal wiring that connects a depreciable electrical asset (i.e. stove or light fitting) forms part of the electrical asset for depreciation purposes is not sustainable. The provision of electrical wiring to a building that is to be utilised for rental purposes would be regarded as an essential item of that building because the construction of the building would be incomplete without them. The minor exception is where the cost of the associated wiring is considered negligible such as for a home security system (as indicated by Rob).

Similarly fire alarms are depreciable but the internal wiring for those fire alarms are capital works.

These are well established principals and clearly identified in the tax office tables of depreciable Vs capital works deductible plant & equipment. It is OK to contest these issues but it would be useful to provide some reference for same.

By the way it is the job of the quantity surveyor to provide the value of assets. It is the job of the accountant to ascertain the useful life of those assets for tax purposes. I would never automatically rely on a QS report without checking the detail - they are often wrong in classification and effective life.

 

[syba]

By the way it is the job of the quantity surveyor to provide the value of assets. It is the job of the accountant to ascertain the useful life of those assets for tax purposes. I would never automatically rely on a QS report without checking the detail - they are often wrong in classification and effective life.

Gary, whilst I agree that the accountant should check the effective life and validity of a depreciable asset that is included in a QS's depreciation schedule, before changing values we suggest checking with the QS first. They may have a valid reason/precedence for claiming an item that is generally not on the ATO's 'list'. Also the effective life can be adjusted from what the commissioner ascertained - we disagree with a few of their lives provided and in the case of an older property, the remaining effective life is adjusted to reflect the age and condition of the assets.

I agree whole heartedly with your other points.

It's gone a bit off topic from claiming a wardrobe now hasn't it....

 

[GaryT]

Gary, whilst I agree that the accountant should check the effective life and validity of a depreciable asset that is included in a QS's depreciation schedule, before changing values we suggest checking with the QS first. They may have a valid reason/precedence for claiming an item that is generally not on the ATO's 'list'. Also the effective life can be adjusted from what the commissioner ascertained - we disagree with a few of their lives provided and in the case of an older property, the remaining effective life is adjusted to reflect the age and condition of the assets.

I agree whole heartedly with your other points.

It's gone a bit off topic from claiming a wardrobe now hasn't it....

Absolutely agree - always discuss any abnormalities with the QS - sometimes we all learn something!