Do I Need A Quant Surveyors rep.

[WBG Redcliffe]

Hi all

Ive just settled a duplex in Mt Isa. The blding is 30y, both units have received full reno's. The report is going to cost me about $1100 GST inc. My acct says that I should not depreciate the units as it will hurt me when it comes time to sell in 5 to 8 years. All the books tell me to do the opposite. Looking for your thoughts and comments...

Thanks Wayne

 

[JamesGG]

Hiya,

Even if you choose not to claim the capital works deductions, the fact you were entitled to them may come back to haunt you at CGT time.

You may also find that some quantity surveyors will advise you if the benefits will not outweight the cost of the report, and may waive their fees or suggest you don't get it done at all.

See how you go

James.

 

[WillG]

Hi all

Ive just settled a duplex in Mt Isa. The blding is 30y, both units have received full reno's. The report is going to cost me about $1100 GST inc. My acct says that I should not depreciate the units as it will hurt me when it comes time to sell in 5 to 8 years. All the books tell me to do the opposite. Looking for your thoughts and comments...

Thanks Wayne

Somebody correct me if I am wrong but I thought that only the 'building write off' if claimed is factored into the CGT calculation. If your building is 30 years old then you will have no 'building write off' to claim anyway . This may not be the case if the duplex has received a 'full reno'.

Do you intend on selling the duplex in 5 to 8 years ?

How much money was spent on the reno ? The reno cost will depreciate at 2.5% per year for the next 40 years (for structural type items. Carpets, window coverings etc will depreciate faster), so you will be claiming < 25% of it anyway.

It all comes down to cashflow in the end

 

[Buzz]

On another note - when looking for a commercial valuation up there early last year there was only one valuer and that was Bob Katters son, which is not unlikely as he is the member there.

Other investors I spoke to whilst up there were flying in tradespeople from Townsville to get maintenance done. (see more detail other Mt Isa post)

Buzz
To Infinity and Beyond

 

[depreciator]

What your accountant means is that depreciation claimed on buildings (Division 43) must be deducted from the cost base when calculating the gain for CGT calculations.
The complication is that if a property was purchased after May 13, 1997, any available building depreciation must be deducted from the cost base whether it has been claimed or not. Many accountants don't know this.
Depreciation claimed on Assets (fixtures and fittings) aren't relevant to GST calculations.
Mt Isa is tricky. We go there occasionally, but only when there are sufficient jobs to amortise the travel across them.
Give me a call when you have a minute and I'll see if I can come up with a solution.
Scott

 

[WBG Redcliffe]

WillG

I am not sure when or if I will sell. If Mt Isa keeps performing well I may not sell. From the research that I have done Mt Isa will remain strong for at least the next 20 years. If this is the case I can see me still having them in 20 years.

The Building is 30y and I know that I can not claim on the building however the reno is just complete and cost about 30k for the two of them. the furnisher cost about 6k.

wayne

 

[BMT & Assoc]

Mt Isa!

WillG

The Building is 30y and I know that I can not claim on the building however the reno is just complete and cost about 30k for the two of them. the furnisher cost about 6k.

wayne

Hi WBG Redcliffe,

You can claim depreciation on all of the renovation costs and even any original plant & equipment. From what I can tell the renovation was done prior to your purchase? In this case a QS can estimate the cost of these works for you. All off the Plant & Equipment is revalued at the time of your purchase and sounds like the preparation of a depreciation schedule is definitely a viable option. If your account advises not to get a depreciation schedule, get a second opinion.
Lately many QS's have been using valuer's or real estate agents to carry out the inspections, particularly in such remote areas. As Scott has mentioned when a QS sends their staff (not contractors) it can take a while to get it inspected, however you are in luck. BMT will be in Mt Isa is the next few weeks and will be able to carry out the assessment for you.
In saying this, at time's it may take time to warrant a trip to certain other remote areas, and I think Scott will agree, that it pays to wait. You are paying for a quality report and a major part in the preparation of some depreciation schedules is the site inspection.
$1100 also sounds slightly expensive for a duplex!
If you require any further information please do not hesitate to post your question's or give me a call on 1300 728 726.

Best Regards

David B

 

[farone]

What your accountant means is that depreciation claimed on buildings (Division 43) must be deducted from the cost base when calculating the gain for CGT calculations.
The complication is that if a property was purchased after May 13, 1997, any available building depreciation must be deducted from the cost base whether it has been claimed or not. Many accountants don't know this.
Depreciation claimed on Assets (fixtures and fittings) aren't relevant to GST calculations.
Mt Isa is tricky. We go there occasionally, but only when there are sufficient jobs to amortise the travel across them.
Give me a call when you have a minute and I'll see if I can come up with a solution.
Scott

Hi Scott;

I find your post to be quite an eye opener in the fact that you say whether or not building depreciation has been claimed or not it must be deducted from the cost base for CGT purpouses when you go to sell.

If you havent got a depeciation schuedle prepared how is the building depreciation calculated upon time of sale? Do you have to get a quantity surveyors report or is there another method?

 

[depreciator]

I find your post to be quite an eye opener in the fact that you say whether or not building depreciation has been claimed or not it must be deducted from the cost base for CGT purpouses when you go to sell.

If you havent got a depeciation schuedle prepared how is the building depreciation calculated upon time of sale? Do you have to get a quantity surveyors report or is there another method?

Yes, it's one of those obscure ones the ATO can pull out if they happen to query how you calculate your capital gain for tax purposes.
As for how you figure out the eligible building depreciation after you've sold the property and no longer have access to it, the ATO would say that's your problem. We've helped people out a few times in claiming 'lost' depreciation on properties they have sold, but we need access to the property to do this. A QS can't just stand on the footpath and have a stab at it.

Wayne, regarding your Mt Isa reno. If 30K was spent, there's $750 per year in depreciation. On top of that is the depreciation on the Assets (Fixtures and Fittings). You'll have 2 stoves, possibly 2 air cons, floor coverings etc, so there will be a fair bit there.
Scott

 

[TommyR]

Hi,
You should have a look at www.bantacs.com.au there is a weath of information available on this subject and a myriad of other property investment advice.

TommyR

 

[farone]

Yes, it's one of those obscure ones the ATO can pull out if they happen to query how you calculate your capital gain for tax purposes.
As for how you figure out the eligible building depreciation after you've sold the property and no longer have access to it, the ATO would say that's your problem. We've helped people out a few times in claiming 'lost' depreciation on properties they have sold, but we need access to the property to do this. A QS can't just stand on the footpath and have a stab at it.

Wayne, regarding your Mt Isa reno. If 30K was spent, there's $750 per year in depreciation. On top of that is the depreciation on the Assets (Fixtures and Fittings). You'll have 2 stoves, possibly 2 air cons, floor coverings etc, so there will be a fair bit there.
Scott

Hi Scott;

Just throwing up a hypothetical here Scott.

If I sold my property that I purchased in 1999 (It is after the crucial 1997 date) and I never had a Tax Schedule prepared on the property but I need to work out my CGT what path should I take in order to calculate the eligable building depreciation (please note for the purpous of this situation I do not want to claim previous building depreciation on the property)????

When you say "the ATO would say that's your problem", does that mean the building depreciation will not be used in the equation to work out my CGT???

Or does it simply mean I am going to have to hassle the new owners to the property in order to get a Quantity Surveyor through the house???

Or is it there is some form of sliding scale to be used (put out by the ATO) for situations like this that calculates the building depreciation off the purchase price and description of my property at the time of purchase???


Thanks Scott

 

[depreciator]

As I said, this is one of those obscure ones that would not get raised very often - I just don't want people thinking I'm scare mongering.

So if we're really in the hypothetical, the ATO could say (and I'm paraphasing): 'You were eligible to claim building depreciation on that property but failed to. That eligible depreciation must be deducted from the cost base. You need to ascertain what the eligible depreciation would have been.'

You would then say: 'Okay, but how do I do that if I no longer own that property?'

The ATO would likely suggest you talk to a quantity surveyor. You'd find one that would assist.

Of course, this scenario probably could play out in a number of ways.

Scott

 

[WashingtonBrown]

It would probably be in the interest of most

investors for the ATO to highlight this lack of claim in relation to the sect. 43 allowance.

I'm sure the client would quickly be advised to go back and amend the returns where it wasnt claimed.

The ATO wouldn't be able to have their cake and eat it too!

Regards

 

[farone]

investors for the ATO to highlight this lack of claim in relation to the sect. 43 allowance.

I'm sure the client would quickly be advised to go back and amend the returns where it wasnt claimed.

The ATO wouldn't be able to have their cake and eat it too!

Regards

Hi Tyron;

Just extending on my hypothetical situation I have found on the ATO website (http://www.ato.gov.au/individuals/content.asp?doc=/content/DSNOR.NNORWPS01.003670008.htm&page=3&H3) that I can go back and amend 4 previous tax returns that werent claimed, back to 2001-2002 financial year.

What about the 1999-2000 and 2000-2001 financial years that I can not claim the building depreciation on, is the ATO having their cake and eating it to?

What happens here Tyron?

 

[JamesGG]

Hiya,

For amendments, the time limit for 2004 and previous years is 4 years for those of us with rental properties.

To amend 2005 returns and onwards, the standard time limit for people, companies, and trusts, will be 2 years, unless you are:

• carrying on a business outside of the STS scheme (inside or out of a partnership)
• a trustee of a trust estate,
• a beneficiary or trustee of a trust that is not operating as part of the STS, or,
• in breach of Part IVA, according to the commissioner.

Otherwise, you will have four years to make those amendments.

So yes, I understand that in a way the ATO can have their cake, and eat a good slice of it too if enough time has passed.

Cheers

James.

 

[WashingtonBrown]

Hi Farone

Hi Scott;

Just throwing up a hypothetical here Scott.

If I sold my property that I purchased in 1999 (It is after the crucial 1997 date) and I never had a Tax Schedule prepared on the property but I need to work out my CGT what path should I take in order to calculate the eligable building depreciation (please note for the purpous of this situation I do not want to claim previous building depreciation on the property)????

When you say "the ATO would say that's your problem", does that mean the building depreciation will not be used in the equation to work out my CGT???

Or does it simply mean I am going to have to hassle the new owners to the property in order to get a Quantity Surveyor through the house???

Or is it there is some form of sliding scale to be used (put out by the ATO) for situations like this that calculates the building depreciation off the purchase price and description of my property at the time of purchase???


Thanks Scott

Firstly....

You cannot claim previous purchasers building allowance - irrelevant of whether they have claimed it or not.

Secondly

I dont have your exact dates to work with so i will make the following points..

a. In your case, from what i can gather, the prime cost method of claim for any plant & equipment MAY be your best alternative.

b. Remember it is fours years of amendment from your previous tax return. NB. its probably in the interest of a lot of taxpayers to be lazy!!!!!

Lastly - there is no such thing as a sliding scale.

There are ways we can endeavours to get around your problem.

Regards