When I was asked recently what most property investors got wrong when claiming tax-depreciation allowances, a few things sprang to mind. Not revaluing plant and equipment upon acquisition; taking on a vendor's depreciation schedule; not claiming balancing adjustments; or simply not claiming depreciation full stop are just some of the common mistakes. But perhaps the most common thing I see is investors shopping around for the cheapest quote. Because, like most things in life, you get what you pay for.
Most educated investors, whether they're buying a residential investment property or an office building, are aware they need a depreciation schedule prepared to claim their tax allowances. But there can be significant fee variations. One might ask why one quantity surveyor might charge $5000 and another charge $15,000 for a report on the same shopping centre. It comes down to the level of detail required to prepare a comprehensive depreciation schedule that maximises tax allowances - and, from my experience, many investors are missing out on millions of dollars in potential deductions.
By way of example, I recently quoted on a suburban office building and missed out on the opportunity as my fee was $2000 too high. Although the firm that won the appointment did a reasonable job of identifying the base building deductions, it failed to include a $3.5 million vendor's fitout contribution. Given the purchase price was about $20 million it was quite an oversight, resulting in the loss of $3.5 million in depreciation deductions (a little more than $1.05 million in after-tax cash assuming a 30 per cent tax rate).
Imagine the value of depreciation allowances that are not claimed if this level of omission is replicated in a shopping centre or office building where multiple fitout contributions provided to tenants have not been identified.
If you are requesting a quote from a quantity surveyor to prepare depreciation schedules, first ask them if they are a registered tax practitioner (which you must be to provide a depreciation schedule). Ask what's included in the schedule and for an estimate of the deductions they expect to achieve.
You will then have the cost and potential return to assess all your options and potentially end up with a few more dollars in your pocket come tax time.