Governments must step in on stamp duty: CEO
It’s the low interest rate environment that has ensured the property market has continued its boom-time run, according...
The quantity surveyor is often deemed to be one of the most important professional advisers in the construction industry, and property investors can benefit from their expertise, especially at tax time.
Traditionally, quantity surveyors specialise in building measurement and the estimation and monitoring of construction costs.
They work closely with other professionals, including architects, engineers, contractors, accountant, project owners and suppliers to oversee the entire construction process—from the project’s feasibility study to its completion.
Outside construction, they can use their expertise to produce tax depreciation schedules and provide guidance on determining realistic insurance replacement costs.
Among the myriad professionals in the property investment industry, quantity surveyors are among the few recognised by the Australian Tax Office (ATO) as having the necessary construction costing skills to calculate the applicable costs that shall be the basis of tax depreciation schedules.
For property investors, quantity surveyors can play a significant role as they try to maximise the their depreciation, or the claimable tax deductions on an asset based on its value declines due to wear and tear.
These professionals, who work together with the ATO, are often tasked to produce depreciation schedules, or a comprehensive report on the claimable deductions on your property.
Depreciation schedules essentially state the items in the property and their corresponding value, then once the tax office determines the effective lifespan on these items, they will include a projection of the amount you can claim as tax deductions each year.
While it is not advisable to pick an asset mainly for the tax deductions you can get, a good depreciation value will definitely influence your cash flow positively.
According to BMT Tax Depreciation’s Brad Beer, the most important depreciation schedule on a property is the first one, which is why it’s important to get in touch with a good quantity surveyor early on in your journey.
He explained: “The first depreciation schedule contains a long-term projection—usually for decades—because there are usually only minor changes in the property within a shorter period. Unless you make a significant alteration on purpose. the depreciation value adheres to the projection.”
Since they are ATO-recognised professionals, the accuracy of the data stated in the depreciation schedule is unlikely to be questioned by the tax office.
By hiring a good quantity surveyor, you are certain that you can get as many deductions on your property as you can. You may also be able to decrease the amount of the tax payable and ultimately see greater returns on your investments.
Despite the benefits of hiring quantity surveyors, some investors still opt to do depreciation schedules themselves to save money.
However, DIY depreciation is more susceptible to mistakes and pitfalls.
For one, you could be missing out on thousands in tax savings because you are more likely to unintentionally ignore claimable items on your report, especially those that could be easy to overlook, including smoke alarms, garbage bins and kitchen appliances.
With more than 6,000 depreciable plant and equipment assets, making this mistake is more common that most people think.
Moreover, you may categorise items incorrectly, which could also lead to decreased depreciation value.
Mr Beer explained: “Some investors mistakenly assess carpet as a permanently fixed asset rather than a removable asset. If an investor claims carpet that costs $3,650 using a rate of 2.5 per cent for structural deductions and fixed items, they would be claiming $91.
“However, if depreciated at the correct rate of 20 per cent, they could claim $730 in the first financial year,” he added.
Lastly, while you might be educated on tax rules relating to depreciation, proposed legislation changes may catch you off-guard once implemented and ultimately impact your claims.
Being backed by a good quantity surveyor can help you ensure that you produce an accurate depreciation schedule, which abides by existing legislation and, therefore, lets you maximise your tax savings.
When choosing a quantity surveyor, one of the first things to look for is their membership to the Australian Institute of Quantity Surveyors (AIQS), a regulatory body that ensures the professionals’ compliance with industry regulations as well as the Australian Standards of high-quality service.
Moreover, they should be registered tax agents under the Tax Practitioners Board (TPB), a national regulatory body that ensures the compliance of professionals with the Tax Agents Services Act of 2009.
It is also important to remember that not all quantity surveyors are specialising in tax depreciation, so take time to find someone who maintains a detailed and updated knowledge of ATO Tax Rulings related to depreciation.
Finally, a good quantity surveyor is able to work hand-in-hand with accountants.
While quantity surveyors are tasked to produce detailed depreciation schedules, accountants are responsible for incorporating the deductions into the investor’s income tax assessment.
Both of these reports are vital to your investment journey if you want to maximise your claims, improve your cash flow position and ultimately continue the growth of your portfolio.
This information is sourced from BMT Tax Depreciation, Australian Institue of Quantity Surveyors and the Smart Property Investment website.