Depreciation calculation for tax return

[rabidz]

Hi,

I got a detail question about depreciation calculation for tax return.

Say, I bought a property & it settled on 18th of October 2013.
I asked QS to calculate the depreciation and it turns out:
Year 1: $3000,
Year2: $2500,
Year3: $2000, and so on.

18-Oct-2013 to 30-June-2014 = 255 days.

So, during 2013/2014 tax return, the calculation of the depreciation that I can claim would be:
$3000 x 255/365 = $2095.89.
For 2014/2015 tax return, the depreciation that I can claim is $2500.
Is this correct?

Thanks.

 

[D.T.]

Exactly right (assuming its an IP that entire time)

 

[Player]

Yes, in that first FY, the full amount allowable must be apportioned as you've indicated. This is on the assumption that you've bought this as an investment property that will eventually be tenanted and provide rental income.

 

[rabidz]

Thanks for the quick responses.

If that's the case, how & when can I claim the remaining 110 days (110/365 x $3000 = $904.11). Does it mean we lost this amount?

My illustration above is 18-Oct-13, which is not makes a lot of difference.

What about if the property settled on 16-May-2014?
In means for 2013/2014 tax return, we can only claim 45/365 x $3000 = $369.86.
For 2014/2015 = $2500.
Does we lose the big amount of 1st year depreciation?

This is the part that I don't understand.
Can someone explain about the 1st year depreciation (for the remaining days that is not counted)?

Thanks.

 

[Player]

You didn't lose any amount.

You cannot claim depreciation write-off when you didn't actually own the property.

 

[rabidz]

You didn't lose any amount.

You cannot claim depreciation write-off when you didn't actually own the property.

The most $$ is in the 1st year. If for example, the settlement is 15-May-2014, it means they cannot claim much depreciation (because of this pro-rata).

My question actually is how do we maximise our 1st year of depreciation (since the most $$ is in the 1st year).

Thanks

 

[Player]

The most $$ is in the 1st year. If for example, the settlement is 15-May-2014, it means they cannot claim much depreciation (because of this pro-rata).

My question actually is how do we maximise our 1st year of depreciation (since the most $$ is in the 1st year).

Thanks

Hi rabidz.

You cannot claim on something you didn't own at the time. Only from the time you owned it.

On a similar theme, you don't pay (nor claim) the full amount of council rates (as one example) on the property you purchase. There is an adjustment on your settlement statement when you've purchased your property.

Only the owner who sold it to you (assuming it was an investment and assuming they had a QS report that they claimed depreciation off) can make the claim for the period prior to settlement.

Think of it in this light. Would you like a health insurer to bill you for a full year's premium even though you took out cover in the last month of he Fin Year? Of course not.

So it is with your depreciation. Your initial premise in your first post is correct.......apportion from time of ownership for that first FY tax return.

 

[rabidz]

Hi rabidz.

You cannot claim on something you didn't own at the time. Only from the time you owned it.

On a similar theme, you don't pay (nor claim) the full amount of council rates (as one example) on the property you purchase. There is an adjustment on your settlement statement when you've purchased your property.

Only the owner who sold it to you (assuming it was an investment and assuming they had a QS report that they claimed depreciation off) can make the claim for the period prior to settlement.

Think of it in this light. Would you like a health insurer to bill you for a full year's premium even though you took out cover in the last month of he Fin Year? Of course not.

So it is with your depreciation. Your initial premise in your first post is correct.......apportion from time of ownership for that first FY tax return.

Thank you so much for this information.

So, how do we maximise our 1st year of depreciation (since the most $$ is in the 1st year)?
I really keen to know this.
Thanks.

 

[DaveM]

Thank you so much for this information.

So, how do we maximise our 1st year of depreciation (since the most $$ is in the 1st year)?
I really keen to know this.
Thanks.

Buy on the 1st of July

 

[Colin Rice]

Its pro-rata. You get your portion in accordance with how many days/year you have owned the IP.

You still get three years from date of purchase so your third year will be pro-rata as well.

 

[jrc]

Check your depreciation schedule to see if your QS has made the calculations based on 18th oct to 30th june.

 

[james start]

How much is a qs?

If a house is over 40 old is it still worth it?

Who on here is a decent qs?

 

[GaryT]

Apportionment is only relevant for items that are not written off at 100% in year one.

All items less than $300 (per owner) are written off @ 100% so they are not apportioned but written off in full in the year when the property was first available for rent.

The QS report should provide full details of same.

 

[new2this]

How much is a qs?

If a house is over 40 old is it still worth it?

Who on here is a decent qs?

Also wondering these questions?

 

[geoffw]

Also wondering these questions?

This has been asked fairly frequently- it's worth while trying to find the posts. Hereis one and here is another singing the praises of our own Depreciator.

As far as an old property- if it's still in original condition, then it's probably not worth getting a depreciation schedule. But not many properties of that age are in original condition- there may have been extensions, alterations, new hot water or carpets- a whole host of things. It's worth contacting somebody, some of them will tell you whether it's worth getting a depreciation schedule done.

Cost I think was around $700.

 

[syba]

Firstly, you need to check whether the QS has already apportioned the first years claim. We always do that and as far as I'm aware, most other reputable QS's do the same. If they haven't apportioned the first years claim you will have to do it yourself. The items you don't need to apportion are:

1. Items costing less than $300 - ie items depreciated at 100%
2. Low value items (value less than $1,000 each) - ie items depreciated at 37.5% (but written off at half this rate - 18.75% - in the first year)

These items are both not apportioned in the first year - if you own it for 10 days or 300 days in the first year, it makes no difference.

 

[Paul@PFI]

Syba is correct. Check the report. From my experience with clients tax I see two different situations.

A. New owner uses previous owners schedule. In this case pro-rata the full year based on days; or
B. If you had a new schedule prepared it should balready be based on the date you acquired it. No pro-rata.

Firstly, you need to check whether the QS has already apportioned the first years claim. We always do that and as far as I'm aware, most other reputable QS's do the same. If they haven't apportioned the first years claim you will have to do it yourself. The items you don't need to apportion are:

1. Items costing less than $300 - ie items depreciated at 100%
2. Low value items (value less than $1,000 each) - ie items depreciated at 37.5% (but written off at half this rate - 18.75% - in the first year)

These items are both not apportioned in the first year - if you own it for 10 days or 300 days in the first year, it makes no difference.

 

[rabidz]

Thanks for all the input..
Apportionment method sounds fair, considering it's been done by the QS.

Thanks.