Use a quantity surveyor’s report to make the most of your depreciation claims

The purchase of a new   investment property that has just settled, like moving into your new home, is an exciting time. Yet gaining the most in tax deductions is often overlooked by ignoring the process of obtaining a quantity surveyor’s report. 

This article illustrates the importance of obtaining a quantity surveyor’s report shortly after settlement. 

For illustration, assume you have held an investment property for one full financial year. Your rental income and expenses may be as follows: 

Gross rental income: $25,000 

Less expenses 

Agents’ fees: $2,000

Insurance: $570

Interest: $32,000

Council rates: $,2500

Body corporate: $3,500

Water charges: $655 

Total expenses: $41,225 

Net cash deficit: $16,225 

So on a simple basis the tax savings on a cash basis is about $5,110.87 if you are on the 31.5% tax bracket, including the Medicare levy. 

Now if a quantity surveyor’s report is undertaken then the tax savings will increase to the investor, using the example above. 

Net cashflow deficit: $1,6225

Add

Depreciation – plant and equipment: $6,500

Qualifying building allowance: $3,500

So total deductions available: $26,225

For the same investor on a tax bracket of 31.5% the tax savings translate into $8,260.87 ( a net benefit of  $3,150).

Fees for obtaining a quantity surveyors report are tax deductible, and the exercise is usually done once only by the investor while he holds the property.

Now if you do a major renovation to an investment property it is common to ask  whether it is worth obtaining a quantity surveyor’s report.

The short answer is yes, as a quantity surveyor’s report is recognised by the ATO and is useful in the event of a tax audit.

A taxpayer making his own estimate is at risk of having is figures disallowed by the ATO.

So for peace of mind retaining a quantity surveyor to prepare a report on an investment property is worthwhile, and the tax savings generated over the life of the property are substantial.

Henry A. Ohana CPA is a tax accountant and agent specialising in rental property investors, residential and commercial at Boutique Accounting.