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How can I work out depreciation on a brand new property?

Discussion in 'Accounting, Tax & Legal' started by Sk3tChY, 21st Apr, 2011.

  1. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
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    Location:
    Sydney, NSW
    I'm looking at buying my second investment property and have found an apartment I'm interested in that's a brand new development.

    I'd be buying off the plans and so would be eligible for the stamp duty exemption which is already a bonus, but I believe since it's a brand new property I'll also be able to claim depreciation on things.

    I've been hunting around the internet trying to find out exactly how/what I can claim and was hoping someone could perhaps clarify a few things:

    1. Cost - From what I've gathered my cost is "construction cost" not the purchase price, is this correct? Or can I claim off the purchase price? As far as I am aware construction cost basically includes the cost of everything it took to get the apartment finished. (i.e. materials, labour, fixtures, fittings etc.)

    2. Effective Life - How exactly would I work out the effective life? I've read here that the effective life for a new structure would be 40 years, is this correct? I haven't been able to find much else on the ATO website.

    3. Consolidation/Individualization - Do I have a choice of consolidating everything under the one cost - Construction Cost - Or can/should I individualize everything? For example, I'd imagine fixtures/fittings would have a much shorter effective life than the structure itself, so it may potentially be beneficial to individualize these claims? (I'm guessing my construction costs would categorized, so I'd know how much $ was spent on what, so this does sound feasible.)

    4. Really basic question here - To my knowledge I can choose from 2 depreciation methods - Diminishing Value and Prime Cost - I've gathered that Diminishing Value means you get more money earlier, but it declines over the life of the asset where as Prime Cost is the same set amount each year for the life of the Asset. My question is, at the end of the life of the asset, do you end up getting the same amount back? Or does one end up better than the other? (Naturally I'd like to get back as much as possible)

    Thanks in advance guys.

    I understand I should speak with a financial advisor or accountant about all this, which I plan on doing - However I like to know and understand how things work before speaking with such people otherwise I just sit there clueless as to what's going on. I won't be taking any of the information given to me as gospel, but rather a point in the right direction, so I have a good idea on what to speak to my accountant about.
     
    Last edited by a moderator: 21st Apr, 2011
  2. builder2818

    builder2818 Well-Known Member

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    Speak to a quantity surveyor and they will help you claim everything you need.
     
  3. Sk3tChY

    Sk3tChY Well-Known Member

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    Location:
    Sydney, NSW
    Thanks mate, I actually spoke to a mate of mine who's father works as an accountant in tax and he clarified a few things for me and also mentioned I'd need to speak with a quantity surveyor.

    He clarified that the costs I'd be claiming against wouldn't be based off my purchase price, but rather the costs that a quantity surveyor would determine.

    I'm presuming the quantity surveyor would get their hands on papers/receipts/info from the builders that built the property and determine how much everything cost?

    Thus far, that's all I've managed to clarify.

    I'm still not entirely sure how claiming would work after getting the report from the surveyor.

    I'm not sure whether I'd just depreciate the total cost as one lump sum over an effective life of 40 years.

    OR

    If the report would be categorized and I'd have to individually claim depreciation on each category/item accordingly.

    I'm confused because this link specifically says:

    If they defined "entire construction cost" a little better, that would probably help, because I'm not sure if this would apply to fixtures & fittings etc, or if these costs would be claimed separately.
     
    Last edited by a moderator: 21st Apr, 2011
  4. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
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    Location:
    Sydney, NSW
    I came across this calculator which gives an idea on the amount you can claim.

    It looks like my claims would be divided into 2 claims:

    1. Building Structure (Division 43)
    2. Fixtures and fittings inside (Division 40)

    Would this be correct?

    Secondly, the calculator only shows a depreciation schedule for 5 years, not 40 years.

    So where is that site getting 40 years from? :confused: Is it incorrect?
     
  5. builder2818

    builder2818 Well-Known Member

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    Location:
    Sydney
    I'm not too familiar on the rules for depreciation but you would be happily shocked and surprised at what a quantity surveyor will be able to claim for you.
     
  6. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
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    Location:
    Sydney, NSW
    Well I've put things through that calculator and have been rather stunned by the amount they're saying I could claim back in 5 years - $50k+

    If this is indeed the case then this particular investment opportunity is looking very lucrative!

    I'll probably get in contact with them to clarify a few things - The say it's free of charge. That should give me all the answers I'm after! :cool:

    I was already stoked with being exempt from stamp duty, but now being able to claim such large deductions makes things even better!

    One last things - I've gathered that say you purchase the place for $550k and claim $50k worth of depreciation deductions over X amount of years, when it came time to sell the place and work out your CG for CGT it would be off $500k, correct?