Site inspections essential for majority of rentals
Like many Australian businesses, depreciation specialists have faced a variety of challenges in recent years.
One challenge that continued to resurface during the pandemic is the necessity of a site inspection for the purpose of preparing a tax depreciation schedule. This was especially tough during times of restrictions, lockdowns and social distancing measures.
The reality is that site inspections are important for claiming depreciation compliantly and to its full potential, whether there’s a pandemic or not.
Site inspections are important for three essential reasons:
- Renovations, including those completed by previous owners, can be identified through site inspections, particularly those missed by the untrained eye like house restumping or older renovations completed many years ago. A physical site inspection is necessary to substantiate the depreciable cost of the type and size of renovation.
- A physical inspection will ensure depreciation claims are 100 per cent compliant. In the event of an Australian Taxation Office audit, evidence of claims is often required. A site inspection will help to substantiate depreciation claims. Photos taken by a landlord, property manager or tenant simply will not suffice.
- A site inspection will identify every depreciation dollar to be claimed. A specialist inspector will make note of every part of the property, take photos and get measurements to ensure every single structure and asset is claimed to its full potential.
A recent analysis of BMT data revealed that, of the 100,000+ residential tax depreciation schedules prepared in the last three years, 66 per cent of second-hand properties had experienced some form of historical or recent addition or renovation.
Some people are mistaken in thinking that site inspections aren’t necessary. There are two common misunderstandings causing this. The first is that because plant and equipment deductions are unavailable on previously used plant assets, they wrongly assume that this rules out all other depreciable assets. The second is the misconception that, if the property was built before 1987, when capital works deductions start to qualify, then the owner won’t get any deductions.
The reality is that site inspections are required more often than not. As data shows, more than two thirds of properties have had some form of renovation, which are verified through physical site inspections. These renovations can include installing assets that aren’t impacted by 2017 legislation changes or are structural in nature and produce more capital works deductions.
For example, if an investor purchased a property in 2022 that was built in the 1960s, it would be impacted by both the 2017 legislation changes and the capital works cut-off date of 1987. But if the previous owner completed a bathroom and kitchen renovation in 2000, the new owner could claim capital works deductions on these until 2040. If the new owner installed new window coverings and carpets, they could claim plant and equipment deductions on these assets, too.
In the vast majority of properties there are deductions available, and a site inspection is needed to claim them correctly.
In financial year 2020-21, BMT achieved an average first full-year depreciation deduction of almost $9,000 for residential clients. This is over $4,600 more than the latest Australian Taxation Office average reported for capital works and plant and equipment deductions.
BMT takes great care in ensuring every schedule is prepared to the highest standard and is ATO compliant. Every schedule is backed by the BMT Guarantee, stating that if BMT can’t double their fee in the first full financial year’s deductions, there is no charge for their service.