is QS report compulsory ?

My accountant told me we couldnt claim depreciation and building write off without QS report after 1999 .....is this true ...?? I cant believe it. Also if I have QS report for another unit in building which is similar, cant I use it or the figures?
thnks
cam
 
Cam,

I'm with you. I believe a QS report is not an absolutely necessity.

A QS report from another unit I guess would not be strictly legally usable. The QS would be liable for the report for the unit for which it was prepared, but not for use of the report for other units. However, it would be an excellent basis for you to approximate the likely values for your unit. To get values that have some professional support, I think you should engage the QS again. If you ask, you might get a discount if it is the second one you've commissioned in the same building from the same QS.

regards,
 
My understanding is that the tax commissioner has indicated that he will not challenge valuations in a QS report (by a qualified practitioner). That's some pretty cheap insurance, IMHO.
 
A QS report isn't necessary but you should always ask your accountant if it would be worth it. If you have a house built in 1960 with little or no additions, chances are your QS report will be worthless. If you have a unit in a highrise apartment building with a body corporate that was built last year, I would strongly recommend one.

If you don't use a QS, you'd be having to make a guess on what you could depreciate for your accountant, because chances are, you won't be hiring him to inspect your property for depreciable items. That can be quite difficult without invoices. I don't want to even know how a person can establish building cost unless they either do some major research on the builder's invoices or throw darts at a dartboard with an assortment of numbers on it.

As for a report from another unit, that won't hold for you. Your unit may be larger or smaller, more expensive or cheaper, contain more items or less, etc, etc. In addition, the QS will not help you out if the ATO comes knocking. If you have a report, you could approach the QS for giving you a lower fee since they already did a lot of work surveying the original unit and it may just require a small inspection and a slight modification to the report you currently hold (Ah, as Pete said).

I haven't heard the ATO say anything about not challenging qualified QS reports. I doubt he would give that assurance. Acording to a report I read a while ago, a high number of QS reports when audited were reviewed down. That represents a revenue raiser for the ATO.

But if you are going to get a QS report done, make sure it is done by a professional. There are too many reports getting done by dodgy operators who won't be around when the taxman cometh. Some of these people use rates from 4 years ago and haven't updated them.

A QS report is useful as you know you are squeezing your property for every depreciable dollar claim you can make within the tax office guidelines. Thats why I get them done.
 
Hi Cam

The tax office are currently auditing many investors and one of the BIG issues for them is claims for depreciation with no factual basis such as a QS report.

Therefore a QS report is virtually essential if you plan on claiming any depreciation items in your tax returns.

Unfortunately, you would be wise to get a new report done on the property, even if it is similar to another property that you have,

Dale

cam said:
My accountant told me we couldnt claim depreciation and building write off without QS report after 1999 .....is this true ...?? I cant believe it. Also if I have QS report for another unit in building which is similar, cant I use it or the figures?
thnks
cam
 
Cam,
You cannot use a QS report if you have the orginal bulding costs.
Sometimes body corps have the original building costs.
A QS report is rarely worth it if the property is pre 85 unless structual improvements.
The seller is required under law to provide you with their special building w/off schedule.
Properties constructed between July 85 and July 87 are depreciated at 4% not 2.5.

Julia Hartman
julia@bantacs.com.au
www.bantacs.com.au
 
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julia said:
A QS report is rarely worth it if the property is post 85 unless structual improvements.
Do you mean pre 1985?

I have a block of flats which is pre 1985- there have been a lot of improvements, but not structural. There have been carpets, blinds, bathroom tiles, built in wardrobes, kitchens- these make the report worth while even before the furnishings are taken into account.
 
Yes, I think Julia meant pre-1985.

My experience matches yours Geoff; even for pre '85 buildings the QS tax depreciation schedules produced great results. It really is virtually essential for every property.

The only house I haven't had the QS through was built in ~1950. It is very basic. When buying it in mid 2001, the bank valuation came in with land value $215k and house $15k. Revalued October 2003 with land value $350k & house $10k. Just asked yesterday for another revaluation. House is close to Perth city on a quarter acre lot; can develop with duplex pair on block. Expecting new valuation 400k/450k with house component very nominal.
 
Hi Julia

I am afraid that I would have to disagree with you on that one. However, I am happy to be proven wrong....

Dale
 
Not sure what you mean, Dale.

Surely, Julia is right that you don't need a QS report?

So, are you disputing that one can't make a reasonable assumption of value - and that should be done by a QS?

Or is it something in an earlier post?
 
Hi Pete

I disagreed with the idea of being able to make a reasonable assumption of a plant items value and claim depreciation based on that assumption.

I do this primarily because I would not like to be an audit situation and trying to justify the values used if the auditor wants to be difficult, and, because I am unaware (ignorantly maybe) of anything within the law that would allow such an estimate.

However, knowing what a brilliant accountant Julia is, I am happy to be proven wrong......

Dale

=Pete]Not sure what you mean, Dale.

Surely, Julia is right that you don't need a QS report?

So, are you disputing that one can't make a reasonable assumption of value - and that should be done by a QS?

Or is it something in an earlier post?[/QUOTE]
 
Thank you, Dale.

Dave, valuer yesterday said it would be land value only for that one! Zero value for house; though I know what you mean, it is a liability as it would cost money to demolish.

:)
 
Just thought I'd add a couple of things to this discussion.

MRY is correct when he/she says that a QS Report (Tax Depreciation Schedule - TDS) may not be worth commissioning on a pre 85 unimproved property. Especially when the ATO has over the years progressively removed items from the asset list e.g TV aerials, telephone installations and light fittings. We often advise people against going ahead if we can't justify the fee. If a pre 85 property has no floor coverings an old stove and not much else, it's unlikely that the cost of a TDS could be justified.

Estimating the building cost is where the ATO really wants you to use a 'professional with relevant experience'. QSs fall under this category, as do Estimators and Clerk of Works. There is some argy bargy in the accounting community about whether a taxpayer can make a reasonable estimate of the value of a stove, hot water heater etc. I won't wade into that one.

As Julia notes, if the original building costs can be obtained these must be used. So be careful to exhaust all avenues. I went to a seminar on depreciation late last year that was convened by the ATO and the AIQS (Australian Institute of Quantity Surveyors). And gee, wasn't that a scintillating afternoon. One thing that was interesting, though, was that the ATO said this year they are going to start to audit building cost estimates. I don't know how on earth they'll do this - and they wouldn't say when I asked in the seminar. I can't imagine they will be engaging QSs to check on the estimates provided by other QSs (though that would be a great contract to pick up). I'd say they may quiz people on why they commissioned an estimate of building cost if there is a chance that the actual costs may be obtainable i.e. if the building is newish. And if you have carried out a renovation on an investment property you own, the ATO will expect you to have receipts.

MRY also noted that the ATO has never said they won't challenge Tax Depreciation Schedules prepared by QSs. Because they do. Yes, if the ATO asks you how you arrived at your estimates for depreciation and you say you engaged a QS they may not take things further, but they may want to see the report. I bet there are lots of QS firms on the ATO radar because they produce non compliant reports. I've got I've got a file with quite a few I've collected over the years. My advice would be to ask your accountant whether they can recommend a QS. Your accountant would see dozens of reports every tax season from any number of QSs and they would know which ones best comply with the ever changing ATO rules. The cheapest Schedule won't necessarily be the best (just as the cheapest accountant isn't necessarily the best).

Scott
 
Dale,

A little gem from the ATO for you. I disagree with many statements in their Rental Properties booklet for 2003-04 but have taken their word on page 18:
"Where you purchase a rental property, the most objective means of establishing your cost of depreciating assets acquired with the property is to have their value, as agreed between the contractng parties, specified in the sale agreement If separate values for depreciating assets are not included in the sale agreement for your rental property when you purchase it, you may be required to demonstrate the basis of your valuation.
Generally, independant valuations that establish reasonable values for depreciating assets satisfy Tax Office requirements. In the absence of an independent valuation you may need to demonstrate that your estimate provided a reasonable value. Considerations would include the market value of the asset compared to the total purchase price of the property."

If nothing else this means you don't have to go as far as a QS report and I must admit I have been spoilt by having a second hand dealer in the same complex as our head office.

To All
I agree with Scott's last comment I have seen some real dodgy QS reports.

Julia Hartman
julia@bantacs.com.au
www.bantacs.com.au
 
Thanks everyone for all the great info. How does one get the building costs on new properties ? I have contacted developers etc on purchased IP's and am getting nowhere.. I once got a figure on a Mirvac IP and it stated something to effect of ..........'as required under section40-360 of income tax assessment act, we hereby provided.........to work out Division 40 ' bla bla and gives construction cost for our Lot.. Is it true this is required? and if so why dont they all provide it?
thanks cam
 
Hi Julia

Thank you for that. I appreciate you taking the time to point out why you thought the way that you do.

I will continue to insist on a QS report because neither me nor most of my clients would have a reasonable idea of a value of a 2nd hand item (nor, the actual items that may be in the property and available to be depreciated) that I would feel comfortable defending in an audit situation.

Cheers

Dale
 
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Cam,
It's sometimes tricky getting costs out of a developer. I guess it's because as a purchaser, your contact would generally be in the marketing arm of the company and once you've purchased your property and they've got your money they probably lose interest in helping you. I think all purchasers of new properties need to agitate for a Tax Depreciation Schedule before they settle. I wonder whether it's possible to have the expection of a free Tax Depreciation Schedule in the contract?
Failing that, all big projects would have had a QS company involved during the job. There are only a handful who do major projects. Try and find out who this was and then get in touch with the direct. If you let me know what project it was I might be able to find out who was the QS on it.
Scott
 
Cam,
insurance companies have tables for each State which give approx. cost per sq. metre for different types of construction for insurance valuation. These may well be accurate enough.
Terry
 
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