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It's a bit complicated.
If you have been using the Low Value Pool, and the Assets (stove etc) you tossed out were in the Pool, they really should stay there. The new Assets you add – if they are between $300 and $1,000 – need to go into the Pool (if you're using it).
The structural work you have done you will claim at 2.5% under the building allowance.
If the bathroom and kitchen were post 85 built, you would have been able to claim the residual value in them when you tossed them out.
I would talk to whoever did the original Schedule and ask them to amend it in light of the work you've done.
ScottDid you know it's possible to claim the cost of removing asbestos in an IP as a tax deduction? There is an ATO ID on this: ATO ID 2004/720
I'd say you would need to rent the place out for a while before doing the work.
Scott
Gosh, it's ages since I've been here – someone told me my name was mentioned.
Emma, in terms of redressing things, much will depend on what you have claimed and how up to date your tax returns are. As Neil said, there are a few things in play here.
To answer your question about getting a pre and post reno Schedule done, I would definitley get one pre reno and then keep all the costs for your reno. Make sure whoever does the initial Schedule will update it free.
Re: the furniture. Yes, you can depreciate it. But you would need to arrive at a value for it when it went into the rental property. This will depend on what it cost you and how long you have owned it.
In terms of finding a QS, with your more complicated situation you ideally want one you can have a sensible chat on the phone with. Neil obviously knows what he's doing. So do BMT and Washington Brown. And us – Depreciator.
Scott
Yep, that would be fine. Just knock a bit off the original value. It's more than likely going to be less than $1,000, too, so if you are using the Low Value Pool you can bung it in there.
Scott
Our Sunshine Coast guy would go out to Kingaroy.
Send me an email and tell me what you can about the property – attach photos if you have them – and I'll work out a cost and likely depreciation return.
We do them.
So do Washington Brown and BMT. We're all national.
But we use qualified people to carry out inspections, so we'll be more expensive than the cheaper guys.
Scott
Resi and commercial have different dates and some different rates.
Some commercial started in 79. Then more in 82. Resi kicked off in 85.
Commercial fitouts in buildings of any age can be claimed if the fitout was done post 82.
Scott
I thought there were a few QS here. I'll try and answer all your questions, Frosty:
1. It doesn't matter what a previous owner has or hasn't done in regards to depreciation. In some commercial contracts of sale, there will be a written down value for Assets, but I've never heard of thgis happening in residential. (As an aside, if anyone os buying a commercial property, make sure depreciation is 'silent' in the contract – this will be to your benefit.)
2. Repairs done by a previous owner are tricky. Agreed, sometimes you won't know what has been done. If there was, say, a new roof added in the last couple of years you would be able to claim this under the building write-off. It should be pretty obvious. Similarly, if the previous owner bunged in a new kitchen. Maybe they did some underpinning. This could be claimed. It would be up to you to find out what work had been done and approximately when. The best time to do this is before settlement.
Scott
With these sort of places, cleaning/laundry costs per visitor can often work out at 20% of the gross rent.
You'd probably end up with a place that is neutrally geared.
And hard to onsell.
But you'd have somewhere cheap to holiday – it's not a bad place, Treetops.
If it's a pre 85 built property, you may not need a QS. With older properties, the building itself is not able to be depreciated (unless renovated post 85). So the only depreciation will be in the Assets – fixtures and fittings. Under the Self Assessment provisons, taxpayers are allowed to estimate the value of the stove, carpet etc. There are usually only about 10 items in a typical rental property. You need to make sure the value you ascribe to them is not a 'new for old' value. It's sort of a second hand replacement value that you need to come up with.
For post 85 built properties (or older ones with renos) you need someone with the appropriate qualifications to be able to estimate the construction cost of the property at the time of construction.
ScottDepends on the total cost – any clues?
Let's assume the house cost $140K in total.
Of that $140K, maybe $125K will be 'building'. At 2.5%pa that's going to be $3,125 pa for 40 years from when the place was built.
The remaining $15,000 is Assets (fixtures and fittings). These depreciate at different rates as Duckster said. You would possible claim a bit over $3,000 in depreciation on the Assets in the first year. Maybe $3,000 the following year. A bit less the year after…
So the total Year 1 claim might be $6,000+
Year 2 might be $5-6,000
Year 3 closer to $5,000.That's really rough. It all depends on what you spent and what level of fitout the place has.
Scott
PropertySeeker,
Ideally, a QS visits the property. But if it's a pre 85 built property, that may not make sense. Or if the property is in the middle of nowhere it might be too expensive. A good QS group (not mentioning any names) will work out a sensible solution.
When you commission a Depreciation Schedule, pay for it, and use it in your tax, you are accepting responsibility for the accuracy of it, so you need to be sure whoever does puts it together does it properly. I wouldn't be comfortable with a DIY on-line version, but that's just me.
ScottThis one comes up alot.
Anything you claim on the building is added back when you do your CGT calcs.
Depreciation claimed on the Assets (fixtures and fittings) is NOT added back. And in many Schedules, there is more depreciation in the Assets than is claimed on the building.
ScottMagic,
The viability of doing a Depreciation Schedule on a pre 85 unit depends on two things: the quality of the Assets (fixtures and fittings) and the length of time you have owned the property.
Let's say it's a recently purchased, pretty basic unit with no flash appliances. The depreciation in the first year may be around $800-$1,000. Second year there will probably be less. With an expected deduction of only $800 or so, I'm dubious as to whether it's worth you paying a QS to inspect the place. Sure, the depreciation found is more than the QS fee, but I'm still not sure it's always worth it.
If you have owned the place for some years and lived in it, paying for a Schedule will be even less viable as the Assets will have lost much of their value.
Of course, if the unit has decent carpet, a split system or two, a dishwasher etc there will be lots more depreciation.
We are reluctant to do inspections of pre 85 units as it often doesn't make sense for our clients. We have another method of tackling these, but to talk about that would be 'advertising'.
I'm always happy to look at internal photos of properties. With a few questions, we can usually work out roughly what depreciation may be there then at least people can make an informed decision on what to do.
ScottI really must look at this forum more often.
Sallyann, you may never read this response given your post was so long ago, but the ATO would likely regard the original building as a pre 85 structure and ineligible for the special building write-off (that's the 2.5%).
Similarly, you would be pushing it trying to get a deduction for transport to site.
But, the work you do on-site i.e foundations, service etc, and the work you do when you get the property there i.e. tarting it up, would be claimable.
ScottPrices up there have certainly come off over the last couple of years. The fact that Virgin are now flying jets there (ex Sydney only) is good for the holiday apartment market. I've also heard that developers are keeping their powder dry and no big new apartment buildings are imminent. That should reduce the over supply and perhaps help prices edge up. It's a good town – or 'city' to those who live there. Great beaches, plenty of services etc. I've got a unit up there and could happily live there. Of course, it has the usual barren housing estates on the outskirts that you wouldn't touch, but some of the 60s housing stock on the hills near Town Beach are great.
ScottI really must frequent this forum more often.
mrtender, from your description of the work you are doing, it's all 'building' i.e. depreciable at 2.5%. So if you spend $20,000, that's $500 per year.If when you reno the kitchen, you replace the appliances, there will be higher depreciation in them.
Also, you mention the house is around 20 years old. Remember, if it's built after July 85, you can depreciate the building.
And of course, there will be the Assets in the place that you aren't touching: floor coverings, curtains/blinds, HWS etc.
Scott
Hi t803815,
The $275 option is only for clients with a new property who have a contract with a builder that has a total price, plans, Asset list etc. When all that information is available, the ATO want it to be used. We also usually have a chat with the builder when doing these. They don't come up very often. The gang would have just mentioned it as a remote possibility.
The guys in the field cost the building (or reno) and all Assets. They input these figures into some proprietory software that formats them. Our head QS then checks to make sure there are no anomalies before the Schedule is sent out. We also send out a monthly communication to all our guys with ATO changes, things we've heard etc.
Scott
'The folks at Depreciator must have changed their guarantee. '
Nope, it's always been that. I think we were the first company doing depreciation work to have a guarantee. They're pretty common now.
We always like to have a QS inspect a property and put the costs together. I think the Australian Institute of Quanitity Surveyors (AIQS) also prefer members operate that way, but it's not really their job to regulate the industry. Similarly, it's not the ATO's job to regulate an industry.
It is indeed legal for a lay person to inspect a property and gather the information for a QS to cost up. This naturally reduces the price.
Lots of companies use this method. I believe one large company goes one step further where data entry operators take the information and enter it into a modified Excell program to produce a Schedule. A QS had a hand in writing the program. The QS industry is uncomfortable with this method.
Here's why I like to have a QS inspect a property. Often when we send out a Schedule, clients will have questions. They'll ask us: 'How much did you value the pergola at?' Or on a big reno they may ask 'What price did you put on the bathroom?'. The questions can be numerous.
I like to be able to go back to the QS and ask for the breakdown. Then we can tell the client exactly what various components are valued at.
Our 'after sales service' I believe is largely the reason 24% of our business is repeat business or referral originated.
Generally speaking, companies that use QSs on the ground are more expensive.
Having said that, there are lots of local QSs who do good, cheap Schedules in their local area. (Of course, on the flip side there are some small guys whose Schedules are not great – I've got a collection of them).
We have some guys in regional centres, but QSs tend to congregate near caplital cities. In places where we have people on the ground, our prices are reasonable competitive. Chances are we won't be the cheapest option, though.
Scott
Yep.
And yes many older properties yield decent depreciation.
A good QS company will find out enough about your property, though, to make sure the effort and cost of getting a Schedule is worthwhile. That's what we do, anyway.
Scott
