Most first-time property investors soon discover that they need a tax depreciation schedule and require a Quantity Surveyor to supply one. But what is a Quantity Surveyor and how do they come up with your depreciation deductions?
Usually Accountants or property professionals like a Real Estate Agent or Property Manager will introduce property investors to a Quantity Surveyor. While the referrer will explain that a Quantity Surveyor’s input is crucial when it comes to providing depreciation advice, they may not shed any light on what a Quantity Surveyor actually does. They get mistaken for Land Surveyors, Market Valuers and even Accountants all the time.
The Australian Taxation Office (ATO) recognises Quantity Surveyors as one of only a few professionals with the appropriate estimation skills to calculate building costs for depreciation purposes. However, not all Quantity Surveyors are experts in depreciation. Some use their skills to plan expenditure on building works prior to or during construction for feasibility purposes or cost management. Depreciation experts, on the other hand, use a very particular set of skills to ensure your depreciation claim is maximised.
What is tax depreciation?
As a building gets older, items wear out – they depreciate. Even if your assets remain in perfect condition, the ATO allows property owners to claim this imagined wear and tear as a deduction. Depreciation deductions can put thousands of dollars back in an investor’s pocket each year.
When the time comes for an investor to select a Quantity Surveyor to complete their depreciation schedule, it is best to choose one who eats, sleeps, drinks and breathes depreciation.
Let’s look at some of the characteristics of a specialist Quantity Surveyor.
- We have a passion for numbers
As specialist Quantity Surveyors, we put our passion for numbers to good use to prepare your depreciation schedule. We’ll assess both the structure of any income-producing property and the plant and equipment assets (commonly known as fixtures and fittings) contained within to calculate their depreciable value.
The cost of structural components such as walls, floors, windows and roofs can be claimed as capital works deductions at a rate of 2.5 per cent per year over forty years for any property where construction commenced after the 15th of September 1987.
This may sound easy but it’s rarely this simple! Most older properties have undergone renovations, and if these works took place within dates legislated by the ATO, the owner can claim on their depreciation, even if they were performed by a previous owner. If different works were completed in different years, the task becomes even more complicated.
Calculating depreciation for plant and equipment assets* is also quite complex. There are more than 1,600 depreciable plant and equipment assets recognised by the ATO and each of them have effective lives over which they depreciate. It takes an expert to correctly identify which category each asset fits into, assign it an appropriate value and then calculate its depreciation across its lifespan.
You’re probably starting to get some idea as to why it is best to ask for the help of a trained expert. The ATO recognise Quantity Surveyors as experts, even going so far as to legislate it in Tax Ruling 97/25, so you need a specialist to crunch the numbers!
- We are dedicated to including every plant and equipment asset on your depreciation schedule
Specialist Quantity Surveyors have excellent attention to detail and in the vast majority of cases we insist on completing a detailed inspection of the property, where we will take pictures of every depreciable asset located inside and outside the building.
Plant and equipment assets hide in even the most unlikely recesses of a property: they control the room temperature, they hang from the rod of every shower, they provide shelter for gardening tools in the corner of the backyard and, on waste collection day, they wait on the footpath for the garbage man to dispose of their contents. Quantity Surveyors see it as our duty to hunt these objects down, catalogue them and ensure every single one is listed on the owner’s depreciation schedule.
When it comes to all things depreciable, no stone goes unturned. Not even your friendly garden gnome is safe!
- Our best friends are Accountants and property professionals
Specialist Quantity Surveyors have a tight-knit relationship with Accountants and property professionals. This friendship is mutual, as we all work to make investment properties perform better for the owner. Quantity Surveyors help potential investors by providing depreciation estimates to Real Estate Agents and Property Managers for their listed properties. We also liaise with Property Managers to arrange inspection times with tenants when the time comes to complete the depreciation schedule.
Once the Quantity Surveyor completes the depreciation schedule, we send a copy to you and your Accountant so that you can enter the deductions into your annual income tax assessment. Accountants can also use your depreciation schedule to help you claim deductions more regularly using Pay As You Go withholding variations, or to adjust any tax returns submitted in the last two years if deductions have not been claimed or maximised.
- There are methods to our madness
Specialist Quantity Surveyors use tactics such as immediate write-off and
low-value pooling to help investors maximise their deductions and get more back at tax time.
For example, we can write off any plant and equipment asset that costs less than $300. In other words, the total value of any eligible item is claimed in full in the first financial year. You might think, ‘I’m not worried about those smoke alarms. They’re only $120 each!’ but when you consider how many low-cost items are in a house, the claims truly add up to a significant initial claim.
More valuable items might also entitle their owner to increased deductions. A specialist Quantity Surveyor can accelerate deductions for items that have a starting cost of under $1,000 or that depreciate to a value of under $1,000 in later years, regardless of what the asset is or its original rate of depreciation.
- We are sticklers for rules
Quantity Surveyors like to play things by the book. We work closely with the ATO and their professional industry associations to stay up to date on the latest depreciation legislation and tax rulings. While the schedules aim to outline the maximum deductions for the property’s owners, it’s important that they follow ATO guidelines to ensure that the claims are legitimate.
The work a specialist Quantity Surveyor does in completing a depreciation schedule also protects investors, should an ATO audit occur. If the ATO question an investor’s tax return, they will be armed with the necessary evidence to support their depreciation claim.
Specialist Quantity Surveyors possess all of these rare qualities and that’s great news for you: you’ll have a professional on your side who will maximise your property’s deductions. We are a friendly bunch of hard workers who would love to hear from you and help squeeze extra cash flow from your investment. To speak with one of the experts from Australia’s leading provider of tax depreciation schedules, BMT Tax Depreciation, phone 1300 728 726 today.
* Under new legislation outlined in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 passed by Parliament on 15th November 2017, investors who exchange contracts on a second-hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on previously used plant and equipment assets. Investors can claim deductions on plant and equipment assets they purchase and directly incur the expense for. Investors who purchased prior to this date and those who purchase a brand-new property will still be able to claim depreciation as they were previously. To learn more visit www.bmtqs.com.au/budget-2017 or read BMT’s comprehensive White Paper document at www.bmtqs.com.au/2017-budget-whitepaper.
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.