11 Oct How to prepare for tax time – Brad Beer
Most of us are aware that tax depreciation helps investment property owners claim more at tax time. However, if you haven’t ordered a schedule before, you might be wondering what information you’ll need to provide to request a schedule. Brad Beer helps with that today.
Kevin: Well, most of us are aware that tax depreciation helps investment property owners claim more at tax time. However, if you haven’t ordered a schedule before, you might be wondering what information you’ll need to provide to request a schedule. Today we’re going to talk to Brad Beer from BMT Tax Depreciation. Brad’s here to give us the inside story on what information you should have on hand when you first make an inquiry and why this information’s going to ensure your schedule is accurate and comprehensive. Brad, welcome to the show.
Brad: Great to be here, Kevin, as always.
Kevin: Yeah, mate. If anyone’s not aware, what is a tax deduction schedule, and why is it necessary for an investor to organise one, say, from a special Quantity Surveyor?
Brad: A tax depreciation schedule is simply a document that tells your accountant or yourself, whoever’s preparing that tax return, how much you should be able to claim in depreciation against an investment property. There’s an amount for the building allowance, or the capital works deduction, and then an amount for the plant and equipment that is able to be claimed, which is things like the carpets and hot water services and other things in there that often get claimed quicker.
Brad: Why is it necessary to get one from a Quantity Surveyor? It comes down to two things, and the first one of those is really around construction cost and compliance. The Tax Office will accept the numbers that a Quantity Surveyor comes up with as a qualified estimator of construction costs, because that’s what a Quantity Surveyor traditionally does is we measure and estimate construction costs.
Brad: On top of that piece of compliance, we need to make sure we understand the tax rules and marry that across the construction cost ability, so that we claim everything we can in the maximum way to maximise those tax deductions for property investors and get the most deductions, and therefore the best cash value out of that investment property. They’re going to marry those things together. We prepare a report that goes off to the accountant and tells them how much to claim each year and get you some more tax back.
Kevin: Can you give me a bit of information, a bit of background, about what a Quantity Surveyor is going to ask for when an investor first makes that inquiry?
Brad: The key thing we’re after is to try to make sure it’s a simple process. There’s a lot of, I guess, requested information. Whatever you’ve got, great. Whatever you don’t, we’ll work with. Firstly, obviously, the address of your property and who’s involved. We want to know a little bit first to make sure that it’s viable for us to go and do this for you. If there’s not enough deductions to make it worth it, then we’d like to tell you that on this phone call that first starts the process rather than working that out later. But we do make sure that we collect this information, then identify, make sure it’s a viable option for the person with the property. If we don’t get enough deductions from it, we sort of cancel it and walk away, even at the end if we got it wrong from the questions at the start.
Brad: Obviously, we need to know where it is. We need to know who the agent is to get access to the property. If we’ve got some detail about the type of building, a house, apartment, warehouse, retail store, whatever it actually is, so we can gain as much information about what we’re looking at to identify whether it’s worth it and make sure we can get involved in getting everything we can out of the property. We’d like to know if you’ve lived in the property ever, because then we sometimes change some of the things that we do and identify the best deductions in the years that you’re not actually living in the property.
Brad: Who your accountant is, in case we need to liaise with them. When you purchased it, settlement and exchange dates, if you’ve got those things are good, because obviously when you buy it is when you start depreciating it, but when you exchange it might change some of the rules and the way we’ve got to treat it. Details of any renovations you may have done, because we want to add those after your purchase. Any plans or information you’ve got about that property that are handy for us to estimate a cost, get access, and see what’s in there are always handy.
Kevin: I guess most people would shop around, talking to different Quantity Surveyors. How do I know, or what questions should I ask, to make sure that I’m actually going to get the maximum deductions available? Because I would imagine that not all Quantity Surveyors are the same.
Brad: Well, absolutely. Important things around making sure the whole process is thorough. Now, the first thing about thorough is let’s make sure that someone, and we use our own staff for this all the time, is coming out, having a look at this property, identifying everything, doing a thorough job of estimating construction costs, and finding everything in there that you can claim, then coming back and making sure that the Quantity Surveyor has the appropriate qualifications.
Brad: Now, as you say, not all Quantity Surveyors are the same. Having the qualifications to estimate the construction costs as a Quantity Surveyor is necessary, but on top of that, needs the specialist in making sure you know the tax rules and marry these two things together and apply all the rules that exist, like making sure it’s projected out for the life of the property, making sure it applies all of the rates to different items, like low-value pooling, low-cost pooling, immediate write-offs, and things that … Make sure that all of the available tax rules are applied to all of the appropriate items, on top of making sure you’ve got their credentials, Institute of Quantity Surveyors tick, tax agent’s number that you’ll need to provide, to make sure you’ve got the qualifications and the experience in knowing how to maximise those deductions all together.
Kevin: Yeah. All those things you’ve just taken us through, it really demonstrates to me that, even if you save 100 bucks or something from one Quantity Surveyor to the other, you could potentially lose thousands by not claiming everything that you can.
Brad: Absolutely. We see on a regular basis the claims that are being made by not doing a thorough job, predominantly less, because if you don’t go to site and measure things properly and identify anything special that may be there, as well as a list of all the items that are claimable, you will miss things. We’re $770 to do a depreciation schedule. We inspect the property. We collect the information, et cetera. You’ve got to cut something out of the process to do it substantially cheaper. Cutting something out of the process is less thorough and will probably cost you deductions.
Kevin: There you go. Pay peanuts, you get monkeys.
Brad: The average deduction out of a BMT report is, prior to the federal budget, about $10,000 in the first year and after that, about eight or just under 10, or just under $8,000. $8,000 is a fair bit of deduction in the first year of ownership, and this goes for 40 years, remember, if it’s a new property or not as much if it’s not. It makes a big difference to get it done properly, and a couple hundred dollars here or there is easy to chew up if you don’t get a thorough job.
Kevin: Brad Beer from BMT Tax Depreciation. Thanks Brad.
Brad: Thanks Kevin. Pleasure as always.