Depreciation / ETAX

[SliderC]

Ok so I think Ive confused myself however want to ask:

I have a depreciation schedule written by BMT with two options: Diminishing Value/Low Value Pool and Prime Cost. I went with Diminishing Value/Low Value Pool.

This method has entries for:
Div 40 (Plant and equipment) - Effective Life equipment (> $1000)
Div 40 (Plant and equipment) - Pooled items (<$1000)
Div 40 (Plant and equipment) - Write off (<$300, purchased this year)
Div 43 (Capital Works Allowance) - The building itself

Lets say for each yr on my depreciation schedule:
Div 40 comes to X (gradually getting lower each year as its written off)
Div 43 comes to Y (Its constantly the same every year...,2.5% of the capital works total...this is where I trip up...we get to this soon)

Doing my Etax:
Section 21 - Income - Rent
"Do not show at this item:
* A deduction for the decline in value of a low value pool" - OK noted.

I: Capital Allowances/Depreciation on plant : "Total"(Ok, seems logic this matches to Div 40)
R: Capital Works deductions: "Total" (seems logical that this matches to Div 43)

Then it has this little button "Depreciation Worksheet". Now, on this worksheet I could if I wanted to enter each of my Div 40 Effective Life and Written off assets, entering in their depreciation amount and all that (Not putting in the low value pool as per the Note"

And here the point...If I put ANYTHING in the Depreciation Worksheet, I cant put anything in the I and R fields on the previous page. This is a problem because, if I put my building total in and depreciate it at 2.5% its cumulitive, each year its 2.5% of the previous value? This totally contradicts whats on the depreciation report which shows a flat 2.5% of the original value every year...

Does that make sense?

My main point is that when depreciating div 43, on my report its constant using the diminishing value method (its the same value every year), however if I put it in the depreciation worksheet with 2.5% depreciation it will have a new opening value every year and the new value will be 2.5% of the last value, rather then a constant 2.5% of the original price.

Should I even bother with the worksheet?

 

[SliderC]

Also, the low value pool is pretty stupid, it doesnt allow you to select 50% ownership like the rental page...

 

[Paul@PFI]

I am a property tax agent / specialist and I never use the LVP field. I enter the deduction to the Rent schedule. I wont go into the finer details why as its quite complex. Its a consistency issue. I just use Div 40 (Depn) and Div 43 (CA) total from the BMT schedule and enter that to the rent schedule.

The fact is The Commissioner wont deny a deduction cause it is entered into the wrong box. So they deny it, you object, amend and its all cool ?? Time wasted all around. That isnt whatt the ATO do. This is no different to a deduction for a BMT schedule fee. Many taxpayers will enter it as a rental deduction right ? I never do that. Cause its a tax agent fee. If I use that field it doesnt affect adjusted taxable income.

The most important thing is that BMT do the LVP thing. Thats the deductible.

You have any idea how many stupid accountants re-enter the BMT info and charge their client for what was already paid for ?? If your tax guy re-enters the BMT it means they are plishing a turd (wonder if that shows as **** ?) - Nope.

 

[SliderC]

Hi Paul,
Awesome reply...

What worries me is that the last year, I got the tax done by an agent and they did enter in the low value field so if I elect not to this year and just enter the deduction total into the I: Capital Allowances/Depreciation field it will probably stick out like a sore thumb.

I understand the low value pool thing, I just dont get why

1. It doesnt have a 50% weighting for duel ownership.
2. You can only have 1 low value pool, makes it a pain in the *** when you have more then one property...

 

[Paul@PFI]

Just ignore the LVP field. Simple. Use the rent schedule.

The LVP makes no sense but follows tax law. It bypasses the Adjusted Taxable Income tests (Medicare Surcharge, HELP debt etc) and I have argued for some time that the tax law relating to LVP is inconsistent with the originating law (explanatory memorandum) and a potential for appeal. Who objects to deductions ?? use of the rent schedule produces no tax benefit so no issue.

 

[Paul@PFI]

Hi Paul,
Awesome reply...

What worries me is that the last year, I got the tax done by an agent and they did enter in the low value field so if I elect not to this year and just enter the deduction total into the I: Capital Allowances/Depreciation field it will probably stick out like a sore thumb.

I understand the low value pool thing, I just dont get why

1. It doesnt have a 50% weighting for duel ownership.
2. You can only have 1 low value pool, makes it a pain in the *** when you have more then one property...

1. Yes it does. The LVP threshold applies to EACH taxpayer. One pool each. Have a chat with BMT about the merits of getting one schule per owner v;s the property This can accelrate deductions for newer props. For older props it waste of air.
2. Multiple item in year on ebut in subsequent years its like a bowl of mashed potato. You cant write off an item except on full disposal.

 

[coastymike]

Paul

Dont understand what you mean. The LVP recorded at Item D6 gets added back at Income Test IT6 for the purposes of the income test.

https://www.ato.gov.au/Individuals/...tions-IT1-IT8/IT6---Net-rental-property-loss/

So don't understand how having something in the LVP would lead to a distorted adjusted taxable income figure.

 

[Paul@PFI]

Correct Mike.

 

[datto]

Save the hassle........do a paper return.....you got about 8 hours left lol.

 

[SliderC]

Heh Datto,
Yea Got it in with around 6 hrs to spare

Ended up ditching all the manual calculations on the Depreciation Worksheet and ditching the manual calculations on the LVP deductions page and simply entering them both as static values on the Rental Schedule sheet.

So much easier, same result at the end of the day and the depreciation report is fine evidence for calculations.

Thanks for the help guys, I feel very satisfied to have learnt to manage my own tax and was a great learning experience.

I feel like I claimed everything I possible could have so feels like money saved (~$500 for
an agent) and a life long skill.


Next step, managing them myself.

 

[coastymike]

Agreed the overall affect is the same but I disagree with putting the lvp into the rental property schedule. ATO has stated many times that is incorrect. If that is the case why not just lump all work related deductions into the other deductions tab.

It could very well trigger an audit. Capital allowances and capital deductions this year higher than last year. Lvp goes down to zero. Used a tax agent to not using one. ATO may think errors in one section might be errors in more and decide to audit. Have definitely noticed they are ramping up audits. Wouldnt have taken the risk myself.

 

[GaryT]

Totally agree with coastymike - but then again I have only been doing this stuff for half my life so I'm am probably one of those "stupid accountants" that Paul keeps telling us all about

 

[datto]

Heh Datto,
Yea Got it in with around 6 hrs to spare

Ended up ditching all the manual calculations on the Depreciation Worksheet and ditching the manual calculations on the LVP deductions page and simply entering them both as static values on the Rental Schedule sheet.

.

you're the Champ!..........

 

[Paul@PFI]

Totally agree with coastymike - but then again I have only been doing this stuff for half my life so I'm am probably one of those "stupid accountants" that Paul keeps telling us all about

No - You are here and I wouldn't class you in that pool.

 

[GaryT]

Paul - You do some great work here and I value your contributions and opinions as I am sure everyone does (even though I do not always agree which is fine). I am quite OK with the price we pay for same being your blatant self-promotion.

However I worry that your continual berating and criticism of other accountants belittles our profession. I would much prefer an answer that eliminates that unnecessary component.

 

[SliderC]

@Gary and @Costy
Im not real worried if it triggers an audit tbh, it would just be another learning experience for me, got nothing to hide.

The reason I chose not to use the schedule in the first place was my original question:

"If I put ANYTHING in the Depreciation Worksheet, I cant put anything in the I and R fields (plant and equip/capital works) on the previous page. This is a problem because, if I put my building total in and depreciate it at 2.5% its cumulitive, each year its 2.5% of the previous year?

This totally contradicts whats on the depreciation report which shows a flat 2.5% of the original value every year..."

I wasnt sure how to deduct the Div 43 Capital works on the worksheet as it asks for "previous years closing value" which was 2.5%less...yet the report deducts 2.5% of the original cost...every year.

Anyone able to comment on that?