Paul Glossop: Good day and welcome to Pure Property Investment one on one, and I am here today with Tuan Duong. Tuan is the principal of Duo Tax. Thanks for joining us mate.
Tuan Duong: My pleasure!
Paul Glossop: We want to talk a little bit today probably about properties in general. Look, as investment property Buyers Agents, as well as buyer advocates for owner-occupied properties. We do buy properties. Look, we don’t specialize in new or off the plan. We typically buy established properties and they can be two-month old, they can be 120 years old. Ultimately our job is to really find the right properties in growth markets, which are going to grow over time and provide the outcome that our objectives that are set out to achieve. We treat depreciation as well as obviously what the quantity surveyor’s role in that whole gamut of what they need to consider when they’re buying a property as a pivotal part to maximize cash flow if and where possible. There’s been some changes lately in the Federal budget, and I know we get asked that question quite a bit now from our current investors and would be investors when we sit down and talk about certain property types. Specifically, to that, we’re probably asking the questions, why is the property… if it’s an older existing property, is there any point in actually getting a quantity surveyor do a schedule and is it worth the while for me? So, hopefully you can lend a bit of an understanding and insights in to how that looks right now in the market.
Tuan Duong: Yeah, sure thing Paul. So I guess with the budget being the 9th of May 2017, there is proposed changes to apply new rulings in that has specifically to do with planning equipment on older properties. So if you buy a second hand, and you’re the subsequent owner of a second hand property, you’d ultimately will not be able to be entitled to claim on depreciation on those planned equipment items. That’s not to say that you can’t claim any depreciation at all. The key is that, the building if it is built after 1987, it is entitled to claim capital works, which is the building components, the component which is the building allowance and that’s the bricks and mortar and ultimately if it’s built after September 1987, you can claim that even though there are no planned equipment items to claim. And also, renovations. If the property is heavily renovated or even mildly renovated, the capital works components in that would be entitled to claim. So for example, you might have an extension that cost 150,000 dollars to build, at some stage, whether it was done by you or the previous owner, you can still claim that as depreciation over 40 years from the date of renovation or the building was built.
Paul Glossop: So that would be pro-rated in that sense? If you bought it and the renovation was done 10 years prior, you’d have 30 years’ worth of residual depreciation on that investment?
Tuan Duong: That’s correct. And then that one report will generally cover the depreciation and capture that within the 40-year life. It is a one-off transactional report that allows you to maximize their cash flow from year on year without having to see a quantity surveyor every year to get that report.
Paul Glossop: Yeah, and that’s the key too, I think it’s probably leading to why it’s important and the beauty about a depreciation schedule on a property is that it’s a point in time, which you look at the quality of the property, you do full schedule on what exists and what the depreciable asset is in that property in that point in time. And it is good for forty years. Unless, you do anything major to that property in that time. You don’t have to get another report the next year, another report the next year. And you don’t have that recurring expense. It’s that one expense which is a tax-deductible expense which you pay. You get the report. The report goes to your accountant and therefore, you look at claiming residual depreciation over the period of time which you own that property.
Again, I think, coming down to years and when properties were purchased, giving you old, new, or somewhere in between, it really comes down to making sure that and probably now more than ever with the changes to the May budget that you have a discussion with a licensed quantity surveyor such as Tuan and his team because there are some intricacies that you need to be aware of, but I’d always say that it’s worth the discussion before you do anything, ask the question. Because if you don’t ask, you just won’t never know whether you’d left money on the table or whether you can’t claim full stop. So, my advice, always have that discussion beforehand. Pick up the phone. Give someone like Tuan and Duo Tax a call or anyone in that depreciation schedule space a call to make sure that you understand what you are in for before you go ahead and purchase that next property. His details are the bottom of the screen, so feel free to give him a buzz. And from our side of things, you can always contact us as per the details below.
Alright, cheers guys! We’ll speak soon.
