depreciation schedules

[superman]

From: Anton Madievski


Had an interesting conversation with one of Deppro's principals. The issue:
Two identical brand new units. Both depreciation reports done by Deppro. Very different figures. Asked why. Well, according to Deppro, the difference in figures was because one unit was bought off the plan, the other unit was bought upon completion, for noticeably higher price. I feel like I'm back to square one, not understanding what a depreciation schedule is or what quantity surveyors do. Question: does the explanation given by Deppro make sense? Dale? Anyone?

Regards,
Anton

 

[duncan_m]

Reply: 1
From: Duncan M




> Two identical brand new units. Both depreciation reports
> done by Deppro. Very different figures. Asked why. Well,
> according to Deppro, the difference in figures was because
> one unit was bought off the plan, the other unit was bought
> upon completion, for noticeably higher price. I feel like
> I'm back to square one, not understanding what a depreciation
> schedule is or what quantity surveyors do. Question: does
> the explanation given by Deppro make sense? Dale? Anyone?



Makes no sense to me.. a Quantity Surveyor is there to count the bricks,
door knobs and estimate the original construction cost.. an activity which
has no bearing on how the property was purchased.

Duncan.

 

[Rixter]

Reply: 2
From: Rixter ®


Anton,

Did you ask him how the higher purchase price effects the report? I can see how the buildings depreciation would be effected by owning the property for different number of days for the financial year.

Happy Investing,
Rixter

 

[DaleGG]

Reply: 2.1
From: Dale Gatherum-Goss


Hi Anton

Got me buggered!

The QS's job is to estimate the cost of construction which has nothing to do with market values or sales prices. I am surprised, and even a little disappointed with their answer.

Dale

 

[Owen]

Reply: 2.2
From: Owen .


I've written about this before but I had the idea that many people didn't pick up on what I was saying. A depreciation schedule is calculated from the PURCHASE PRICE of a COMPLETED property regardless of how old it is.

In Anton's case the OTP property is just a bunch of numbers which would primarily be the cost of building. When the property is finished, the building cost is no longer relevant so the ATO has told all quantity surveyors that their estimations are to be calculated from the SALE PRICE.

I bought an 8 year old apartment recently that was trashed. I got a QS report and the fittings depreciation values were based on my purchase price. I immediately did a complete renovation of this apartment, revalued, refinanced and rented it. I then scrapped the remaining values as specified in the QS report. This scrapped report is worth more in my tax return than the renovation cost to do. I then got a new QS report (no receipts you see!!) and am depreciating the new costs at the quantity surveyors estimations which is more than I paid for the items.

For example -

Real value of trashed 8 year old carpet - maybe $100
Value of carpet as specified by QS as proportion of purchase price - $4700
Cost of replacement carpet during reno - $2400
Estimated value of carpet as specified by QS after renovation - $3200
Amount scrapped and returned to me in last years tax return - $4700 plus partial first year depreciation of $3200 worth of carpet.

The building depreciation is based on actual build cost at the time it was built but the fittings are estimated from purchase cost.

Ask the QS guys!!!

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"

 

[superman]

Reply: 2.1.1
From: Anton Madievski


Thank you very much everyone for confirming my sanity.

Anton

 

[see_change]

Reply: 2.2.1
From: See Change


Owen

So what you're saying is

Part 1 you've written off the residual value ( based on your first QS report ) of the items you've replaced in your renovation , and claimed this written off value in this years tax return.

Then
Part 2 following renovation, you've got a subsequent QS schedule and claimed this as well.

Is this correct?

If so , I'm certainly aware of part two , but I haven't been aware that you could do part one. Is this accepted / widespread practice ?

Have just about to finish a renovation and am wondering about the value of what might have gone out on the back of the builders truck ...

see change

it's better to be guided by your dreams than your fears

 

[Patosan]

Reply: 2.2.1.1
From: Paddy in the Paddies


Highly Informative,

As Dale suggested to me a few posts earlier, it seems as though getting a QS report on every property is a must.

OK, so generally what do they cost and can anyone recommend a QS in the general Essendon area of Melbourne ?


Patosan

 

[DaleGG]

Reply: 2.2.1.1.1
From: Dale Gatherum-Goss


Hi Patty

I currently use Mr Tom Plenty of BMT & Assoc whose email address is [email protected] and I find them quite good.

They are in Melbourne and I believe that you should expect to pay between $400 and $800 as an initial guide.

Good luck

Dale

 

[steve]

Reply: 2.2.1.1.1.1
From: Steve Mcleod


with a name like 'Mr Tom Plenty' you would have to give him a go.

steve

 

[Rixter]

Reply: 2.2.1.1.1.1.1
From: Rixter ®


Dale,

Does Mr Plenty only do Melb Suburbs or do you know if he does country Vic too..ie Echuca?

Happy Investing,
Rixter

 

[Owen]

Reply: 2.2.1.2
From: Owen .


See Change,

You got it in one. You can replace any item in an IP at anytime. If that item was being depreciated then the remaining value can be scrapped (written off) in that tax year. Depreciation is then continued for the new item.

If the old item is valued as part of the purchase price then it is likely to be valued at more than it's real value. If you then replace it you can scrap scrap that estimated value and then claim for the new item. If you get the value of the new item estimated by the QS then this is also likely to be more than you paid for it.

I don't know an easier way of reclaiming your renovation costs - and a whole lot more - than doing this.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"

 

[Owen]

Reply: 2.2.1.1.1.2
From: Owen .


Hi Dale,

I use BMT & Assoc too and used to use Tom Plenty in Sydney until he disappeared. I wondered where he went. Brad Beer (another great name) replaced him in Sydney if anyones interested. Both very helpful and where I got all my information from.

I checked the details of what I am doing (see previous post) so many times they must have been sick of me calling but I couldn't believe that it was real. It is - so many thanks to BMT.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"

 

[DaleGG]

Reply: 2.2.2
From: Dale Gatherum-Goss


Hi Owen


At the risk of being argumentative, I really do believe that your QS is leading you astray . . .

>I've written about this before
>but I had the idea that many
>people didn't pick up on what
>I was saying. A depreciation
>schedule is calculated from
>the PURCHASE PRICE of a
>COMPLETED property regardless
>of how old it is.


It is only the chattels that can be valued in his way and not the building itself.

There have been no changes to the law, or even the interpretation of this law, for some time now.


>In Anton's case the OTP
>property is just a bunch of
>numbers which would primarily
>be the cost of building. When
>the property is finished, the
>building cost is no longer
>relevant so the ATO has told
>all quantity surveyors that
>their estimations are to be
>calculated from the SALE
>PRICE.


This is not actually correct and I confirmed this with 2 separate QS today.


>The building depreciation is
>based on actual build cost at
>the time it was built but the
>fittings are estimated from
>purchase cost.
>
>Ask the QS guys!!!


I did, and yes, they have confirmed that the building write off is estimated on the construction cost.

Thanks for the input, Owen, I appreciate you perservering with this issue for our benefit and knowledge.

Have fun

Dale

 

[WebBoard]

Reply: 2.2.2.1
From: Glenn M


Question in regards to renovations. When people do renovations and ask Quantity Surveyors to create depreciation schedules for them, when the Quantity Surveyor asks you for receipts....what do you say?......all of the receipts mysteriously disappeared...(even though you have just finished renovating?).

How do people get around this, especially when you start to renovate a number of your properties?

GlennM.

 

[Rixter]

Reply: 2.2.2.1.1
From: Rixter ®


Glen,

Get the QS report done before you renovate!

Happy Investing,
Rixter

 

[Owen]

Reply: 2.2.2.2
From: Owen .


Hi Dale,

I said - A depreciation schedule is calculated from the PURCHASE PRICE of a
>COMPLETED property regardless of how old it is.

You said - It is only the chattels that can be valued in his way and not the building itself.

I'm now saying - You are right and I should have been clearer. I was only talking about the Division 42 part of the schedule as the Division 43 (building write off) is calculated on the original build cost at the time the building was built. I think I said that later.

BTW, it not argumentative Dale. I put far more stock in what you say than what I say any day.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"

 

[Peter Noake]

Reply: 2.2.1.1.1.2.1
From: Pierre .


G'Day Owen. long time no see.

For all, I use BMT and Associates too in Newcastle. Very professional and reasonable rates - $385 for a depreciation schedule.

As for the age old question of 'should i get a QS report for an old property?' In my opinion, YES. The last place I got one for was a pretty old 3BR, 1 Bath house in Merewether. A very quick and dirty renovation (done by the previous owner - a prominent Newcastle Knights player) saw the place with a paint job, polished boards, tidy kitchen (certainly not new and flash), and newish carpets. That's about it really. BMT managed to find deductions in the order of $30,000 with about $10,000 of that in the first three years. When you consider that that will give me about $4800 in tax savings over those three years, the $385 outlay is well worth it.

Pierre

 

[paulzag]

Reply: 2.2.1.1.1.2.1.1
From: Paul Zagoridis


The thing I like about QS reports is when they look around and say "twelve taps? That's twelve washers that need depreciating" and then keep going on the most amazing things.

Having said that, I haven't used a QS for my positive cash-flow properties. It doesn't really make sense. I don't expect to sell the properties but should anything change I don't like having a lower cost base.

Hmmm now that I write about it, I think I'll get a QS in.

PaulZag
Dreamspinner
WealthEsteem :: Psychology of the Deal
http://www.wealthesteem.org/

 

[WebBoard]

Reply: 2.2.2.2.1
From: Bill Vals


Can someone clear this up please?

Lets say that someone purchases an older property rents it out for a year or two and then decides to demolish it and build a new one in its place.

Would he be able to write off the ammount remaining in his depreciation schedule and then start depreciating the new building?

Is there an age limit where the depreciating kicks in?

Thanks a lot
Bill