Most of us understand the basic concept of depreciation. This principle states that whenever an object is used for the purpose for which it was created, it undergoes wear and tear. It could be your car, or your house, or even your laptop. That is why the value of assets keeps depreciating every year. What many people do not know, though, is that depreciation on a property might not be all bad. It helps you claim tax deductions against the depreciation of the property. Let us see how this works.
How Depreciation Helps in Reducing Tax?
As per Australian tax rules, an investor buying a house could claim tax reduction on two types of assets. One was the ‘plant and machinery’ segment which referred to all removable parts of the house. This could include things like furniture, upholstery, electrical gadgets, etc. The other category was called ‘capital works’, which included the basic structure. It also included inbuilt elements like concealed wiring etc. Earlier, both of these types of assets of a property were used for creating the depreciation schedule. But since 2017, the rules have been amended. Now only the fixed assets can be used to set off the depreciation amount.
Why We Need a Quantity Surveyor?
As explained above, depreciation on a property can be used to claim tax deductions, making the property investment more worthwhile. A properly listed depreciation report should be filed along with the tax returns. One could argue that finance and taxation are matters that should be handled by chartered accountants. But in the case of depreciation of property, a qualified and experienced quantity surveyor would be needed. When you hire the services of a good tax consultant for your property, they would deploy a good quantity surveyor for the job. These quantity surveyors are usually well qualified, with a degree in the Science of Construction. Such quantity surveyor tax depreciation would have in-depth knowledge of house construction principles and also the relevant depreciation rules. They are suitably knowledgeable to be able to estimate the accurate cost of construction. This is the reason the Australian Tax Office recommends that tax depreciation quantity surveyors are used to create the depreciation schedule.
Responsibilities of a Quantity Surveyor
We already mentioned earlier that a quantity surveyor needs to be registered as a bona fide Registered Tax Agent. The quantity surveyor needs to be able to distinguish which assets are capital works and which are not. Also, the surveyor would need to calculate the net asset value by assessing the fundamental value of a depreciated asset. If needed, the quantity surveyor needs to be able to estimate the value of a property in case it doesn’t have the value provided in the building contract.
A property is an investment that can yield rich dividends. But property depreciation is something that reduces the sheen of a property. The good news is the reduction of tax that can be claimed on account of this depreciation. A good quantity surveyor can help you claim what is legally yours.