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In the 2008-2009 financial year, the Australian Taxation Office (ATO) reviewed 28,400 tax returns resulting in revenue adjustments of $65.1 million. They also sent 134,800 letters to individuals explaining how to declare rental income and claim rental property deductions correctly.
In the event of an audit, it is essential that Property Investors have a tax depreciation report prepared by a specialist Quantity Surveying firm who will stand by their report and answer any questions asked by the ATO. Not only will this ensure that personal risk is minimised but it will also maximise depreciation deductions.
If an individual is already claiming property depreciation, BMT Tax Depreciation can review the claim or existing report, free of charge. This is to ensure the correct legislation and methodology has been applied, as well as making sure the Investor is maximising their entitlements. Over the past few years, BMT Tax Depreciation has provided its clients with a free review of existing depreciation reports. In a large percentage of these cases, the Investor was missing out and BMT helped them tap into this extra cash.
In all cases, BMT Tax Depreciation will identify any discrepancies, make sure deductions have been maximised and determine if the correct methodology has been used.
Investors who have not been maximising their deductions or claiming depreciation previously are allowed to go back and amend the previous two financial years tax returns. The BMT Report easily facilitates this.
Property Investors: Choose your Tax Depreciation Specialist Carefully - A Recent Case Study
Recently, a Property Investor saw BMT’s free review offer and emailed four reports they had obtained to review@bmtqs.com.au for analysis. After BMT reviewed each report and advised the Investor that they had missed out on deductions, the Investor engaged BMT to prepare four new reports. The following points were noted when analysing the original reports (produced by another organisation):
Property One, Strathfield NSW – Report Feedback:
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Some plant and equipment items were missing. Certain assets should be in every residential dwelling. The following were missing from the report: range hood, oven, bathroom accessories, door closers and smoke alarms.
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Some items were under valued. It is not just the cost of the asset to consider – there are also installation costs and extras like preliminary costs and consultant fees.
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The report calculates depreciation for 5 years and then projects the depreciation for the remainder, making the figures difficult to justify later.
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The Investor agreed to have another report completed by BMT. Additional deductions identified totalled $61,640.
Property Two, Fortitude Valley QLD - Report Feedback:
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The legislation/effective lives that were being used to depreciate items were incorrect.
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Some plant and equipment items were under valued.
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The depreciation on the building structure was under valued.
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The item 'Furniture and Fittings' was used in the report to cover a number of items such as televisions, beds, lamps etc. These can and should be itemised separately to apply increased depreciation rates to qualifying assets. As it was not itemised in the report, deductions were not maximised.
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The Investor agreed to have another report completed by BMT. Additional deductions identified totalled $33,831.
Property Three, Hawthorn VIC - Report Feedback:
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Report only calculates the depreciation for 1 year then projects for only 10 years. The report should last for 40 years to outline total deductions.
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Calculations were incomplete, meaning the accountant will have to calculate them (taking extra time, increasing accountant fees and possibly missing out on deductions).
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Some plant and equipment assets were under valued.
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The depreciation on the building structure was under valued.
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The Investor agreed to have another report completed by BMT. Additional deductions identified totalled $20,264.
Property Four, Adelaide SA - Report Feedback:
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Some plant and equipment assets were under valued.
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The depreciation on the building structure was under valued.
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Low value pooling was not utilised.
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The Investor agreed to have another report completed by BMT. Additional deductions identified totalled $7,136.
Comparison
Once BMT Tax Depreciation had completed new reports for the four properties mentioned above, a total of $122,871 in additional depreciation deductions was identified. This made the process well worthwhile for the Investor.
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