Quantity surveyors / Depreciation

[Skeetaboat]

Tell me all about them... I've got a few questions.

How does it work with DIY renovations (kitchen, bathrooms and a couple of wall knockdowns)? Do we keep receipts and get deductions for what we paid, or does the QS just apply their magic formulas?

Are bathroom and kitchen renovations classed as decline in value or capital works deductions?

Can anyone tell me roughly what kind of depreciation you get for kitchen and bathroom renovations? (I know that it would vary of course depending on the size/scope, but just looking for some indication as I want to work out if it is worthwhile us doing the kitchen and bathrooms or not, as the property is in Frankston and may not attract significantly higher rent as a result of renovation)

Is there a certain point in buying a property that you need to have a quantity survey report done? (eg before settlement/after settlement/anytime)?

Clearly, I'm green with this!! I do appreciate the advice. Thanks a bunch.

 

[Propertunity]

How does it work with DIY renovations (kitchen, bathrooms and a couple of wall knockdowns)? Do we keep receipts and get deductions for what we paid,

Technically, yes, you keep the receipts.

... or does the QS just apply their magic formulas?

Only in the event that you have lost the receipts

Are bathroom and kitchen renovations classed as decline in value or capital works deductions?

Not sure what you mean by 'decline in value'. But different parts of the reno depreciate at different rates, which is why you hire a QS to do the report.

Can anyone tell me roughly what kind of depreciation you get for kitchen and bathroom renovations? (I know that it would vary of course depending on the size/scope, but just looking for some indication as I want to work out if it is worthwhile us doing the kitchen and bathrooms or not, as the property is in Frankston and may not attract significantly higher rent as a result of renovation)

That is the wrong Q to be asking. You don't do a reno to get depreciation and therefore get a tax refund. Why would you spend $20K say, to get a $10K tax refund (if you are on a 50% tax rate) and zero $ extra rent?? Tax benefits are the icing on the cake not the cake itself. Never do things purely for a tax benefit.
You should only do a reno to increase value of the property which you can refinance some equity out in the form of cash or for additional rent return - preferrably both.

Is there a certain point in buying a property that you need to have a quantity survey report done? (eg before settlement/after settlement/anytime)?

After settlement (or on settlement) and certainly after reno when you will be using it to claim reduced PAYG tax on a weekly basis via a Variation form that you get from the ATO.

 

[Neil Richardson]

Propertunity has all the answers !


The only thing I can add is that for a (Literally) DIY reno, you can't claim the costs of your own labour on the project.


Cheers

 

[Skeetaboat]

That is the wrong Q to be asking. You don't do a reno to get depreciation and therefore get a tax refund. Why would you spend $20K say, to get a $10K tax refund (if you are on a 50% tax rate) and zero $ extra rent?? Tax benefits are the icing on the cake not the cake itself. Never do things purely for a tax benefit.
You should only do a reno to increase value of the property which you can refinance some equity out in the form of cash or for additional rent return - preferrably both.

Thanks for the info Propertunity. We will increase our equity from the reno so it's worth doing eventually, we're just trying to weigh up if the tax benefits make it worthwhile doing before we put tenants in. If tax benefits will offset the cost by half, I'll go ahead and do it before we put tenants in, but if they only kick in a few thousand, we might hold off.

Some of the renovations (converting a large laundry to 4th bedroom) will give us extra rent, but the more expensive things, new bathrooms and kitchen whcih will increase equity, may not achieve much in higher rental returns (this is according to one PM i have spoken to, and I don't know how accurate that is, I need to make some more phone calls).

We have to weigh it all up, because once tenants are in, we will only have the opportunity to do renovations if there is a change in tenants, which is likely, but we don't want to find ourselves in a situation where we have to end a lease in order to do renovations before selling (planning on perhaps a short term hold, 4 years, not sure yet).

So many things to consider. Tax is just one of them, but the one I have least understanding of!

Thanks for your thoughts.

 

[Skeetaboat]

Propertunity has all the answers !


The only thing I can add is that for a (Literally) DIY reno, you can't claim the costs of your own labour on the project.


Cheers

Hi Neil. Thanks for that info. So you just claim exactly the amount that it cost you in terms of the things you bought? Eg I spent $20,000 and so I can claim $20,000 in depreciation over a period of x years (x varying depending on what kind of renovation/appliance/modification). There was another thread where someone said they had seen PS reports where the deductions were worth 3 times what was actually spent. I will try to find the link.

Can anyone share some Year 1, Year 2, Year 3 etc depreciation amounts from their quantity survey report after bathroom/kitchen renovations? I know it's all different depending on the scope of work etc, but I just want to get a rough idea. At the moment my understanding is so limited - someone else's actual figures will give me some better understanding.

 

[Neil Richardson]

Deductions worth 3 times what was spent are part of the reason the ATO has now made us (QS) become Tax Agents under the Tax Practitioners Board.

Some firms make outlandish claims and then say in the fine print that is up to you to justify the claim. They get business by people saying how great their deductions were.

The law is/was the law and all you can claim is based on what was spent and any more is a false claim.

Under the new rules and their safe harbour provisions, if you rely on us for your claim, then is it us that is responsible.

But to answer your question, if you spend $20,000 on a kitchen, some if it will depreciate at 2.5% and some at varying rates for the oven, dishwasher etc. etc.

The total available for depreciation will be the $20,000 but it will be made up of various different claims.

Regards

 

[gooram]

I would say make a choice, either get a QS to do the work for you, or educate yourself, don't do both.

If you want to work it out for yourself, I found this to be quite useful together with the effective life list from the ATO:

http://depreciator.com.au/ebook-download.html

 

[s.w.i.s]

Is there anyway to claim for house and contents prior demolition of house?

Thanks any advice is welcomed.

Mark

 

[ashalim]

Is there anyway to claim for house and contents prior demolition of house?

Thanks any advice is welcomed.

Mark

BMT called it Scrapping. I'm sure all QS can do it though.

 

[depreciator]

I'm sure all QS can do it though.

Not really. Lots of them don't even do tax (depreciation) stuff.

If it's a post 85 built house (or a pre 85 with recent renos) it's my understanding the written-down value of the Capital Works i.e. building, disposed of can be claimed when demolished.

With Assets i.e. fixtures and fittings, you need to rent the place out for a while before tossing them out and trying to claim the value of them. If you buy a house and 'scrap' Assets immediately, you could get into strife - I always thought this was a bit aggressive, so I got a Private Ruling from the ATO to confirm my suspicions. It's mentioned in here:

http://depreciator.com.au/ebook-download.html

Scott

 

[syba]

If it's a post 85 built house (or a pre 85 with recent renos) it's my understanding the written-down value of the Capital Works i.e. building, disposed of can be claimed when demolished.

That's correct - the total remaining value of the capital works (written down value) can be claimed in full in the financial year it was demolished.

With Assets i.e. fixtures and fittings, you need to rent the place out for a while before tossing them out and trying to claim the value of them. If you buy a house and 'scrap' Assets immediately, you could get into strife - I always thought this was a bit aggressive, so I got a Private Ruling from the ATO to confirm my suspicions. It's mentioned in here:

Agree, although it doesn't stop some people for trying it out - but I wouldn't recommend it though. A possible way to claim it without having to rent it out 6 months or so, is that you have the property available to rent for a while (doesn't have to actually be rented, but you are actively seeking tenants), but a circumstance arises to change your mind and you decide to demolish it. You must be able to prove that your intent was to rent out the property. It could be that while you were trying to rent it, the agent later told you the place was a dump and needed to be majorly renovated or demolished to get a tenant (not saying that is an acceptable argument, but an example). If going down that path, best to get a private ruling.

 

[ashalim]

My bad,

I had a lot of assumptions in my comments

 

[tdh78au]

If it's a post 85 built house (or a pre 85 with recent renos) it's my understanding the written-down value of the Capital Works i.e. building, disposed of can be claimed when demolished.

this just got interesting.

Will scrapping still apply if a property gets disposed off due to unforseen circumstances (burn to ground in a fire, earthquake, etc)?

And then new updated dep. schedule if insurance builds a new one?

sorry to side track .... curiosity got the better of me.

 

[syba]

this just got interesting.

Will scrapping still apply if a property gets disposed off due to unforseen circumstances (burn to ground in a fire, earthquake, etc)?

And then new updated dep. schedule if insurance builds a new one?

sorry to side track .... curiosity got the better of me.

Yup - doesn't matter how the building is destroyed. However, if you get money from the insurance company, you have to offset that on the amount you can claim. Eg, if you have $200k left of capital works and it burns down, but you get $150k from the insurance company, you can write off the balance of $50k. However if you get $250k from the insurance company, then you can't write off anything! Ie, if you have the place insured and it burns down, etc, your insurance should be a greater value than the written down value so if this happens there is no real benefit.

It relates to section 43-40 of the Income Tax Act. See Here