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.
Frequently Asked Questions about this Article…
Common mistakes include not revaluing plant and equipment when you acquire a property, automatically accepting a vendor's depreciation schedule, failing to claim balancing adjustments, or not claiming depreciation at all. Another frequent error is shopping for the cheapest quote and missing important deductions.
Fee differences usually reflect the level of detail in the depreciation schedule. A low-cost report may miss items that a more thorough quantity surveyor would identify, while a higher-fee schedule typically includes more detailed identification of base building items and tenant fitouts that maximise tax depreciation deductions.
Yes. The article gives an example where a firm that won a lower-fee quote missed a $3.5 million vendor fitout contribution on a $20 million purchase, resulting in the loss of those depreciation deductions — roughly $1.05 million in after-tax cash at a 30% tax rate.
Ask whether they are a registered tax practitioner (required to provide a depreciation schedule), what exactly is included in the schedule, and request an estimate of the depreciation deductions they expect to identify. That lets you compare the cost against the potential return.
You should not automatically accept a vendor's schedule. The article flags taking on a vendor's depreciation schedule as a common mistake — you should revalue plant and equipment on acquisition and confirm all items, including vendor contributions and fitouts, have been correctly identified.
Very important. Missing vendor fitout contributions can mean losing millions in depreciation deductions on larger assets like shopping centres or office buildings, because multiple tenant fitouts and vendor contributions may significantly increase deductible amounts.
Yes. The article advises you to confirm that the quantity surveyor is a registered tax practitioner, because being a registered tax practitioner is required to provide a depreciation schedule.
Request a quote that includes the expected depreciation deductions so you can compare the fee to the potential tax benefit. Assess cost versus likely return — a more detailed (and sometimes higher-cost) schedule can uncover deductions that deliver significantly more value at tax time.
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