Hi,
I have been reading posts here for a long time but first time I am going to ask a question. Bit of background – my parents own PPR and 2 IP. They have owned the IP's since 1990 & 1991. I have gone through their tax returns and their accountant has NEVER claimed depreciation. (trusting their accountant of 30+ years).
I sent off their tax information to their accountant yesterday, advising that depreciation had not been claimed and they would like to claim the last 4 years in total (3 previous years that was never claimed – I have been told you can only claim up to a maximum of 4 years).
He has rung to say that it is not worth claiming depreciation as you loose this when you sell the property, so they will end up with, less at time of sale. Looking for advise as I haven't come across and accountant saying don't claim depreciation. Any feedback on how the depreciation stuff works for now and when you sell the property.
Look forward to your feedback
Perfectly correct. Deprecitation is not a freebie. what you claim today gets added back when you come to sell. If you never sell it is not a problem.
Hi Scott,
I just logged onto the ATO website and saw this
"Cost base
You must exclude from the cost base of a CGT asset (including a building, structure or other capital improvement to land that is treated as a separate asset for CGT purposes*) the amount of capital works deductions you have claimed or can claim in respect of the asset if:
1. you acquired the asset after 7.30pm (by legal time in the ACT) on 13 May 1997, or
2. you acquired the asset before that time and the expenditure that gave rise to the capital works deductions was incurred after 30 June 1999."Note my bold in passage above.
This statement is considtent with my understanding in that the ATO will still assume you have claimed your capital allowances if youcould have but didn't if the property was purchased after 1997.
A recent chat with my accountant reinforced this.
Now I am not an accountant so disclaimer applies but based on that statement it would appear as is Freedom's folks might as well claim the capital allowances available to them.
On top of this capital allowances impact on CGT and not depreciation calimed for plant and equipment.
So, and without knowing, the full details, I reckon Freedom should go back to the accountant.
Freedom – ATO Document "Rental Properties 2011" Booklet – and paragraph taken from page 21 bottom left hand corner.
There is Depreciation (of fixtures and fittings) and then there is Special Building Write Off (write off of the cost of construction or the building itself). Whether there are claims to be made for either depends on the age of the house. The treatment of both is different as far as what happens on sale of the house.
Depreciation – fixtures and fitting – any written down value of these will comprise part of the sale price at sale for tax purposes. Likewise, any depreciable items included at purchase will come out of your cost base for CGT
Special Building Write Off – any claimed during ownership can potentially reduce your cost base of the property on sale and potentially increase any Cap GainIt is correct that there may be some adjustments on sale due to both of the above, which potentially will increase any capital gain. However, given the purchase dates of early 1990's, any capital gains will most likely receive a 50% discount. So, effectively, at worst for every $1 you claim during the life of the property as a tax deduction, you will then potentially have to add back 50c onto your capital gain when you sell (after the discount) – ie tax brackets being equal you are usually always better off claiming.
I would be asking the accountant to explain in a little more depth so that you can fully understand his rational for not claiming given your particular circumstances. Costs Vs Benefits
Cheers,
CraigSheeez – I need my eyes tested.
I skim read the first post twice and missed purchase dates. I'll go off into the corner and slap myself.
That aside Crag makes good points – if the sale of the property is made in a low/no income year then there are signifciant benefits to be gained by claiming depreciation now.
Hi
I am not a qualified tax accountant.
but I has some thought about this topic,
I think it is good idea to claim depreciation each year which helps up the cashflow for running property portfolio.
Craig made some good point.
imaging, you claim depreication and get back $1000.
even you have to give back that $1000 when you sale the property you are protentially better off.because of inflation…..
after 20 or 30 years $1000 will be much less purchasing power than now .
correct me if I am wrong..
i would really like to hear other people's opinion.
Taylor
So your Accountant does not want you to claim a dollar deduction because you will have to pay back 50c in 10-20 years time ?
Cheers,
Rob
Read up on the concept of Net Present Value.
Hi All,
Very good question Freedom and some good answers from previous posts.
In this particular situation, with your parents having owned the properties since the early 1990's (assuming that the properties were built before July 18 1985) they won't be entitled to claim the 'special building write-off' also known as Div 43, and the plant & equipment assets will have fully depreciated by 2002 – ten years ago. This means unfortunately that there won't be any depreciation left for your parents to claim – unless they've spent big dollars on renovations in the last 5 years. Should the properties be built post July 1985 they will still be entitled to 4% (until the end of 2012/13 tax year) or post Sept 15 1987 – 2.5% over 40 years.
All plant & equipment assets have different effective lives, these generally last up to 15 years. Most of the assets can be written off quicker through the use of a low value pool. This is utilised when a correct depreciation schedule is prepared by a qualified Quantity Surveyor.
Unfortunately, in terms of claiming retrospectively, the ATO changed the ruling back in October 2008 from the previous 4 years to now only being able to go back the previous 2 years in missed deductions.
Now most people would agree that it's better to have that extra bit of cash in your pocket now, and pay a small percentage back when you sell the property (assuming you sell at all). Depreciation is an added bonus (when available), you claim it when you can and then if you do sell (after 12 months you're entitled to a 50% discount on CGT) you'll pay a percentage (at your marginal tax rate) back of 50% of the claim made. Meaning, you're still in front and it's cost you less to hold that property in the early years when it's the heavily negatively geared.
I hope this helps,
Just another thought….
I knew a lot of tax accountant have no idea about property investment, hence a lot of thing they don't claim.
I have changed 2 accountants in 4 years…. because they are just don't understand property investment( meaning they won't look after your tax affair), they only wearing their "tax accountant" hat and charge people !
no all the tax accountant are excellent in their field, many spuikers as well !
Thank you so much for your help. It helps when talking to their accountant.
The properties were built 1980 and 1990-91. So for one they can't get depreciation (thanks accountant). However on the other they can. On the older of the house they are about to renovate the whole property in the coming months, so this will generate depreciation (i already told the accountant that once reno's are done that they will be getting a quantity serveyor to complete reports on both properties).
No problems at all Freedom.
I would recommend engaging a quantity surveyor to complete a depreciation schedule as soon as possible to ensure they lodge for missed deductions this financial year.
Once the renovations are complete on the older home, engage a quantity surveyor to ensure you're maximising your deductions. <Moderator: delete advertising>.
I hope this helps,
Derek wrote:"Cost base
You must exclude from the cost base of a CGT asset (including a building, structure or other capital improvement to land that is treated as a separate asset for CGT purposes*) the amount of capital works deductions you have claimed or can claim in respect of the asset if:
1. you acquired the asset after 7.30pm (by legal time in the ACT) on 13 May 1997, or
2. you acquired the asset before that time and the expenditure that gave rise to the capital works deductions was incurred after 30 June 1999."So some posters seem to be missing this point. The amount you SHOULD have claimed on depreciation will be deducted, whether you have claimed it or not.
In other words you are throwing away money by not claiming depreciation.
P.S. Get a new accountant.
Either way claim it.
I fail to see the benefit in not claiming in the hope you might get more down the track IF you sell. Better the money in your pocket sooner than later.
PS: Get a new accountant.
I agree. Claim that depreciation.
fire that accountant, and get a new oneSack the account . Every-one here seems to be missing the main point here. Claming or paying depreciation is very trival, when compared to the massive opportunity costs of not having even a few hundred dollars a year tax refund, that could have been invested in the early 1990 s. At that time my few hundred extra dollars I had due to tax saving went into companies before they listed on the ASX for 5 cents after listing they were worth over $3.00 after 10 years worth 8- 13 dollars. The divedends each year are more than the intial purchase price.
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