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To answer your questions Ronulas:
Yes, you can estimate (self-assess) the value of things like alarm systems and dishwashers ect?
All Depreciating Assets have an Effective Life determined by the ATO. This life dictates their depreciation rate. You’ll find this on the ATO site – good luck with the search.
If the opening value of an Asset is under $300 it can be claimed immediately in full. If the opening written down value at the commencement of the Schedule is between $300 and $1,000, it goes into the Low Value Pool as a Low Cost Asset. If the value starts out over $1,000 and then falls below this, it enters the Pool as a Low Value Asset.
The Pool depreciates at 18.75% in the first year and then 37.5% per year after that.
It is easy to lodge amended assessments going back 4 years. Each year is amended. Going back past 4 years is tougher.
It’s time to get an accountant, Ronulas.
Re: Self assessing the value of items in the place you have just bought, I said in my previous post it would be better to discuss this over the phone. I reckon you should avail yourself of this offer.
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http://www.depreciator.com.auHi Derek,
I doubt whether anybody will use one of our schedules for even 20 years, let alone need one that runs for 40 years.
(And it would probably only be depreciation on the building that keeps running anyway, and that’s a straight 2.5% per year so Year 39 will be the same as Year 2 if the property is brand new.)
When we started doing tax work only, we used to do 5 year reports as this was the average length of time people held a property before selling, or held a property before making changes.
Then somebody started doing 10 year reports. Then 20 year reports. Now there is even one company that advertises ‘lifetime schedules’, which is just a silly marketing spin that made me laugh when I saw it.
When changes are made to a property, the existing schedule to an extent becomes redundant.
realistically, it’s hard to imagine a rental property surviving for longer than 20 years without needing some work e.g. a new kitchen.
We’re about to launch an online facility for clients of ours for whom we have done a schedule in the past. If they have made changes to their property, they will be able to input the data on-line and generate a new schedule. A new schedule will also go to their accountant simultaneously. The cost will be around $60, which will probably be cheaper than what their accountant would charge to fiddle with an existing schedule.
I’d be interested in feedback on this service.
ScottTax Depreciation Schedules
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http://www.depreciator.com.auGoods and Chattles went to being called Fixtures and Fittings and now they’re Depreciating Assets.
Who knows why.
Depreciation on the Assets is just another outgoing i.e. cost you can claim. It’s no different from other outgoings: interest payments, management fees, rates etc.
In a pre 85 built unrenovated property, the only depreciation available is in the Assets.
A QS (like us) will charge you a fee to prepare a report. The issue will be whether there is sufficient depreciation able to be claimed to justify the fee. Our schedules runs for 20 years and we have a guarantee that you will get more than our fee in the first full year of the schedule or we’ll refund the fee. Having said that, if we don’t think it’s worth the exercise, we won’t proceed – no point mucking tenants and property managers around unecessarily.
You are able to ‘self assess’ the value of assets (but not the value of building work). It’s not too hard, but I’d need to explain it over the phone.
We also now have a service for unrenovated pre 85 properties where we can put together a schedule at a reduced fee if you can privide sufficient information – photo survey, rough floor plan etc.
Depreciation is a non cash deduction i.e. it’s just sitting there waiting for you to claim it. So you might as well do everything you can to do that.
ScottTax Depreciation Schedules
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http://www.depreciator.com.auI’ll have a go at explaining it.
Any depreciation you have claimed on the building itself (not on the Fixtures and fittings within the building) must be deducted from the cost base when you are calculating your CGT. This increases the capital gain, so in effect you pay tax on this claimed amount when you sell.
Let’s say you buy a house built in 1990 to rent out. That house cost $100,000 to build (excluding fixtures and fittings: carpet, stove etc).
You can claim building depreciation at 2.5% per year = $2,500 pa.
So you own that house for 5 years and then sell it. You’ve claimed $12,500 along the way in building depreciation and you pay tax on this. (Remember, there is currently a 50% CGT discount if you hold a property longer than 1 year so you’ll be paying tax on half of this.)
Points to bear in mind:
– Depreciation on the fixtures and fittings often outweighs the depreciation on the building itself, certainly in the first 4-5 years.
– Any building purchased after May 1997 must have the eligible building depreciation deducted from the cost base upon sale whether you have claimed it or not. So you might as well claim it. Many accountants aren’t aware of this fact.
Hope this clears things up. I’ll be in office all this week, so if it’s still doesn’t make sense, feel free to call.
Scott
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http://www.depreciator.com.auTaipan makes a point that if the place has termites you might reconsider the purchase (unless you can use it to negotiate a great price).
You say that the bathroom has tiles falling off it now. So the damage has not been done while you have owned and been renting the place out. You therefore cannot really claim it as a ‘repair’ against your income. There is a logic to this. If you buy a place and need to spend money on it before renting it out, this really becomes a ‘cost of aquisition’. It is is not immediately claimable and really not depreciable either. It is added to your cost base when calculating CGT when you sell.
This is sort of straying into accountant territory, so you’d best run this past your accountant.
Regards,
Scott
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http://www.depreciator.com.auJust as an aside to everyone, whenever I need to repair anything in one of my places I get my PM to send me before and after photos. Nobody has ever asked to see them, but I like to know I’ve got them just in case.
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http://www.depreciator.com.auThis isn’t ‘advice’, but it may answer your questions.
First up, you’re ineligible for depreciation on the building (unless it has been renovated after Feb 92).
So that leaves you with the Fixtures and Fittings.
They may total $4,000 in value and you would be able to claim most of that in the first 3-4 years by using the Low Value Pool.
Of course, the inclusions may be of higher quality and worth more than that, but in Beenleigh it’s unlikely.
Be careful claiming too much as repairs and maintenance after 2-3 months. Imagine yourself answering this question from the ATO: ‘So John, you bought this place and after renting it out for 2 months the bathroom was trashed so badly that you needed to put in a new bathroom? Let’s talk about what your tenant did. I presume your property manager has photographs..’
Now that would be a worst case scenario, but I don’t think it’s really worth tempting fate.
Painting a wall because it’s been damaged is a feasible repair. Having to replace badly stained carpet would be too. But a whole bathroom?
Be careful.
Scott
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http://www.depreciator.com.auHi Melb,
It may indeed be questionable whether you will get sufficient depreciation to justify the cost of commissioning a schedule. Much depends on the quantity/quality of Plant items (AKA Fixtures and Fittings) e.g. carpet, stove, air con etc.
I’m in the office most of today and most of tomorrow. Feel free to give me a call and we can chat about the property. You are allowed to ‘self assess’ Plant, but I’ll need to talk you through this.
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http://www.depreciator.com.auI use a guy called Peter Lang (PLA Management) at Edgecliff.
His business partner (Maria) does a fair bit of property work.
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http://www.depreciator.com.auCoincidently, I went past the Wolli Creek development yesterday on the way home from the airport. There is another building going up – scaffolding up to four or five levels so far. I’m not sure how high this one is going to be, but there will be some people in the already completed blocks who will be losing their views. Buyers would have been aware of the projected towers, though. Of course, tenants may be a tad surprised.
The ‘parkland setting’ hasn’t happened yet, but it will. I imagine there will be ‘rolling lawns’ to the creek banks. Not sure whether I’d be game to put my toe in the water, though.
Skippygirl, no sign of any shopping centre on top of the station yet. Shops will inevitably appear in the vicinity – they would not have been given approval to develop without shops and other ‘neighbourhood’ facilities. There will eventually be a sizeable population that will sustain retail – probably a collection of garrish 7 elevens. I recall talk at one stage about an Ikea and some things like that going in that area. Not sure whether that’s still on the drawing board.
As Gordon said, there is lots of development planned for that part of Sydney. Who knows whether they will be good investments long term. The broader area isn’t bad, but it sort of lacks a focal point e.g. the Darling Harbour/Jacksons Landing area has the harbour close by. I reckon short term, the yields would be dreadful.
The amount of development in the Green Square/Alexandria/Zetland area is also staggering. This is closer to the CBD. I think these ‘created neighbourhoods’ take a while to bed down – they’re pretty contrived to start with.
If I was looking for a unit to buy in Sydney, I’d look for one close to the water – either the harbour or a beach.
Anyway, I’m rambling. They’re just my thoughs and I could be completely wrong – I’ve never really considered purchasing a Sydney apartment.
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http://www.depreciator.com.auI’m not sure whether the reality of that area is quite living up to the ‘vision’ yet. I haven’t seen any marketing material for the development, but I can imagine it – people riding bikes in expansive parkland, families frolicking on the banks of the creek, that sort of thing. That creek is probably cleaner than it was, but the only thing that really differentiates it from an urban canal is the fact that it doesn’t have concrete sides.
The buildings look pretty good – there are a couple up and running. I’m not sure how many more are on the way up. They can be seen for miles, so the views would be pretty good. You’d be able to see Botany Bay and the airport to the east.
I’m not sure where residents go to shop – there would be nothing within walking distance. That’s what I partly mean when I say the area hasn’t quite caught up with the development yet. I’d say some people who paid for views may lose them down the track. There is a car yard to the east of the buildings that I’m sure will be built on one day.
Transport is okay because there is a rail line and station right there.
No idea what tenant prospects are like or what the yields are. I’d be very careful.
Scott
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http://www.depreciator.com.auHmmm.
I reckon you’d get a few different answers if you called the ATO on this one.
The cost of transporting the house to the site would not be claimable.
But the cost of reinstating it on the new block should be. It would have presumably had new footings/piers, and as you said it was rewired and replumbed. These would be regarded as ‘capital improvements’.
Might be best to confirm with your accountant.
Scott
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http://www.depreciator.com.auRe: Mick’s question on depreciating the carpet.
If you buy a DHA property and it is carpeted, you are paying for the carpet so you can depreciate it.
If at the end of the lease the DHA replace the carpet, this would be at their expense, not yours, so you could not claim depreciation.
Similarly any maintenance they pay for during the tenancy is at their expense.
You’d have to guided by your accountant on this one, but that’s my understanding. Julia will correct me if I’m wrong.
Scott
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http://www.depreciator.com.auThe first time I went for a loan I was 19. I had an appointment with the lending manager at a branch. It was afternoon peak hour and I was running late. There was nowhere to park, so I rode my motorbike up onto the footpath and parked it right outside the bank. I jumped off it and ran inside with my helmet still on. Then somebody screamed. And one of the tellers hit the panic button. I looked around to see what all the fuss was about and I realised it was about me. I didn’t think there was much point trying to explain that I was there for an interview and not a hold-up, so I walked out. Right when the cops were walking in. That’s when I had to start doing some explaining. They eventually saw my point when I said I probably wouldn’t make an appointment in my own name if I was going to hold up the place. They booked me for riding on the footpath.
I got the loan from another bank.Tax Depreciation Schedules
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http://www.depreciator.com.auWe’ve had good feedback over the years from clients who have been part of TIC. We’ve also done some jobs for their members.
They have lots of meetings all over the place and I think it’s always useful for investors to get together with other investors and swap ideas whether it’s in person or in an internet forum.
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http://www.depreciator.com.auHey, maybe New Zealand is now one of our territories? Shhhhh. Don’t tell them.
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http://www.depreciator.com.auHi ‘The Petersons’
There is a ‘search’ function on this site and Tasmania has been the subject of many conversations, so it may be a good idea to see what has been said previously. (Having said that, I have never used the ‘search’ function.)
I was in Tasmania last week looking at one of my properties. The following is my take on the Tassie from the people I spoke to. Don’t take what I’m saying as a substitute for your own research, it’s just what I gleaned from a handful of people:
As everyone knows, Tassie boomed along with the rest on the country over the last few years. I get the feeling that the latest boom put Tassie ‘on the radar’ for mainlanders so its price movements may mirror those of the mainland more closely from now on.
Prices fell back toward the end of last winter, but seem to have levelled out now. I imagine prices in summer would be stronger as there are more mainlanders down there having a sticky beak.
A PM I spoke to was laughing about the ‘seachangers’ who moved from the mainland to retire in Tassie. By the end of the first winter, many of them had packed up and put their homes on the market.
I’m not sure what the tenant pool is like in smaller places. Probably the same as the tenant pool in small mainland towns.
As ‘Ravtown’ said, the West coast is largely dependent on tourism (and mining). One industry towns make me nervous.
Yes, Wynyard is a good spot. So is Penguin. They’ll small, but very close to Burnie – pop 17,000. The block of flats I own is in Somerset – 5klms from Burnie. It’s on the coast, but not a particularly pretty stretch of coastline. It performs pretty well for me, largely because of the great PM who manages it.
It’s good that you are going to go to Tassie and have a look in person.Scott
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http://www.depreciator.com.auSo it’s a Cost Plan you’re after i.e. an estimate of building cost.
It depends to an extent on the nature of the development. Naturally it costs more to work out construction costs on a high end property as opposed to lower end.
You’ll need plans and possibly engineering drawings if there is anything tricky. For accuracy, you’d also need to have some idea of the fitout quality.
I imagine you’d have to pay a QS $700-$1,000 in total.Tax Depreciation Schedules
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http://www.depreciator.com.auI reckon good PMs are the key. I went down to Tasmania last week to inspect a property (block of 6 flats) I have owned for a while (but never previously seen). I met my PM. She’s pretty tough. She knew the property inside out and gave me a rundown on each tenant – payment history etc. In addition to that she does inspections every 3 months and sends me hard copies of the inspection notes. I’ve had the odd problem tenant, but she is on to any potential issue in an instant.
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http://www.depreciator.com.auHi Dan,
It depends on where they are, how similar they are, and whether we can get access to all 7 on one visit.
The price could range from $330 to $440 each.
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