Most of us wouldn’t purchase a car before seeing it or exchange unconditional contracts for a property without a building and pest inspection. We believe the same applies to site inspections when preparing a tax depreciation schedule.
Property depreciation can save you thousands, sometimes tens of thousands, each financial year. A tax depreciation schedule holds the key to unlocking this cash flow. Your schedule lasts the lifetime of the property, so it’s important to get it right from the very beginning.
In this article we will explore:
What is a depreciation site inspection and what does it involve?
A site inspection for depreciation purposes is different to other inspections like building or open houses.
To complete a site inspection, a specialist needs to enter the property to find all the items that can be depreciated. During the inspection, you will see them documenting the property’s items, taking measurements and photographs and analysing the workmanship.
An inspection is especially important if your property was purchased second hand. The site inspector will make note of all plant and equipment assets in the property. Although some of these assets may be impacted by 2017 legislation changes, they can still be included in your capital loss statement. In some scenarios this can be an important component if or when you decide to sell the property or dispose of the assets. More importantly though, a trained specialist will identify additional works that will qualify for depreciation via renovations or additions completed sometime many years ago.
Importance of noticing improvements during a site inspection
Renovations and additions completed to a property over many years ago can be hard to find and are often missed by the untrained eye.
For example, if your investment property originally had a gravel driveway and if anyone concreted the section where cars are parked, it may not seem like a qualifying addition, but that driveway will increase your claim.
In this scenario, you wouldn’t be able to claim depreciation on the gravel as it is soft landscaping. But you can still claim capital works deductions on the newly concreted section for up to forty years.
A specialist site inspector will identify any renovations completed by the previous owner. This means that if the original structure of the building is too old and ineligible for capital works deductions, you can still reap returns from any recent renovations completed in the last thirty plus years. Data shows that of all the schedules completed by BMT, 66 per cent have been for properties that have undergone some kind of renovation or addition.
Maximising claims while maintaining compliance
Knowing what to include in a tax depreciation schedule can seem straight forward. You look at the property and include what’s there, easy right? However, a specialist knows what to look for during a site inspection to ensure that your claim is maximised correctly.
For example, a ducted air conditioner has division 40 and division 43 components. The ducting needs to be valued separately and added to the capital works deduction while under TR2021/3 the packaged unit is considered plant and equipment and depreciated using its unique effective life.
Another example might be properly using immediate deductions that allow the owner to instantly deduct qualifying assets in the year of purchase. While knowing the cost of the asset may appear to be the only thing required to claim the deduction, this isn’t the case. An asset must meet four important steps to be eligible.
Support from the industry
The Australian Institute of Quantity Surveyors (AIQS) is the peak professional standards body for build environment cost professionals. The National Tax and Accountants’ Association (NTAA) is the representative voice for the tax community.
Both the AIQS and NTAA support the requirement of site inspections. They know that when site inspections aren’t completed, deductions are missed, and costly errors are made.
Some of the most common errors that happen is incorrectly claiming capital works deductions and misusing depreciation incentives such as the immediate deduction. When errors such as these are made, you can come under Australian Taxation Office scrutiny.
Site inspections make it easier for you
As a property investor, you are already juggling many things from work to tracking your cash flow to mapping out your future investment strategy.
When a site inspection isn’t conducted, it means you must do a lot of the heavy lifting, from organising stacks of paperwork to providing the property’s structural information that you have never needed to think about before and not being a specialist yourself things will get missed.
A site inspection takes the guess work out of preparing your schedule. BMT Tax Depreciation can make it even easier by organising the inspection directly with your property manager.
BMT has been conducting site inspections on properties for over twenty years. A BMT Tax Depreciation Schedule has never failed an audit and is the preferred supplier to thousands of accountants across the country.
To learn more about depreciation and how a site inspection can ensure you claim the most from your investment, Request a Quote or call BMT on 1300 728 726.