When an owner first purchases an investment property, they will often be recommended by their accountant or a property professional to speak with a quantity surveyor to find out about the depreciation deductions available for their property.
Many property investors are unfamiliar with the work that quantity surveyors do and as such, they often have many questions.
A quantity surveyor is a qualified professional who specialises in building measurement and who estimates the value of construction costs. Quantity surveyors are able to apply their expertise during the various stages of construction to ascertain the cost of building works on any residential or commercial property.
They will often specialise in providing their expertise at a particular stage in the construction process, for example at feasibility stage, they use their knowledge of construction methods and costs to advise the owner of the most economical way of achieving their requirements. After construction is completed, quantity surveyors can specialise in providing the costs of a building for the purpose of providing depreciation schedules.
Below are three facts investors should know about quantity surveyors who specialise in providing depreciation schedules.
1. Why should a property investor obtain a quantity surveyor who specialises in depreciation?
A significant number of property investors remain unaware that they are entitled to claim a deduction due to the gradual wear and tear of the structure of a property (capital works deduction) and the plant and equipment assets contained within a property. These deductions are known as depreciation.
Similarly, a number of property investors who self-assess at tax time don’t obtain adequate advice from an expert on the depreciation deductions they can claim. This can result in investors paying more tax than they need to.
Most investors lack the complex knowledge of depreciation legislation and the methods used to calculate deductions necessary to ensure their depreciation claims are correct and maximised.
Quantity surveyors are recognised under Tax Ruling (TR) 97/25 as one of a select group of professionals deemed qualified to provide construction cost estimates for depreciation purposes.
A quantity surveyor who specialises in depreciation will use his or her skills to produce a schedule which outlines all of the deductions the owner of a property can claim for both structural items and plant and equipment assets. This schedule can then be used by the owner of the property and their accountant to apply the correct deductions when they lodge their annual income tax return.
2. Ensure your quantity surveyor has the appropriate industry qualifications
It is important to ensure your specialist quantity surveyor is a registered tax agent.
The Tax Agent Services Act (TASA) of 2009 provides the appropriate standards of professional and ethical conduct and regulations by which tax agents, BAS agents, financial advisers and other professionals involved in providing advice relating to tax and financial service industries should abide.
The Tax Practitioners Board has stipulated that quantity surveyors are required to be registered under TASA if they are completing tax depreciation schedules for a fee or reward.
There are also a number of professional industry associations which quantity surveyors can become members of, such as the Australian Institute of Quantity Surveyors (AIQS) and the Royal Institute of Chartered Surveyors (RICS). These industry associations provide guidelines and advice, allowing specialist quantity surveyors access to information which helps them to ensure the valuations they provide investors with for depreciation purposes are accurate.
3. Ask what is included within the depreciation schedule
It’s important for property investors to ensure they choose a depreciation schedule from a specialist quantity surveyor who includes a site inspection. Without visiting the property, it is likely that many of the plant and equipment assets within the property will be missed in the final report.
The schedule should list deductions for all plant and equipment assets using both prime cost and diminishing value methods of depreciation. These are the two methods quantity surveyors use to calculate depreciation deductions. An investor will need to discuss which method best suits their investment strategy with an accountant, as only one method can be selected.
Asking for a list of inclusions will help investors to select the most comprehensive depreciation schedule. Apart from checking whether both depreciation methods are used, the investor should also ask whether the schedule will last the life of the property (40 years). The schedule should outline whether any assets are eligible for an immediate write-off and use low-value pooling to accelerate deductions.
A depreciation schedule which provides the investor with an effective life for each asset found will allow them to work out the best timing for completing necessary repairs and maintenance or even plan for a renovation to replace worn items.
If a property has been acquired part way through a financial year, a pro rata calculation should be provided for the percentage of the year the property was available for rent.
Where the property has more than one owner, a quantity surveyor can also provide a split depreciation schedule which divides each asset’s value by ownership percentage first, potentially qualifying the owners for increased depreciation deductions.
A comprehensive depreciation schedule provided by a quantity surveyor who specialises in depreciation can make a significant difference to the deductions an investor can claim during tax time and therefore the cash flow earned from their property.