To inspect, or not inspect.

That is the question.

And we have been asked it three times in the last week by accountants, so someone out there is up to mischief.

We’ve been doing Depreciation Schedules for over 20 years, and this bubbles to the surface every now and then.

The short answer is ‘no’. But as you would expect there are a few caveats. We’ll expand on them below.

Of course, if a property does not need to be inspected, our turnaround time is lightning fast – more about that below, too.

We should also look at the properties we might insist on inspecting.

Lastly, is there anything you would like us to cover in these newsletters? Surely there is. 

Key points

1. 1. Not all new properties need to be inspected. Where the actual cost is known via a build contract, it must be used. 
2. 2. Where the build cost is not available, we look at each property to determine if an inspection is required. If up to date photos are available on line and no changes have been made to the property, it may not be required. 
3. 3. What properties actually need an inspection? Apartments in big complexes with extensive common areas, architect designed houses and old houses with renovations over time would normally all require an inspection. 
4. 4. We can deliver a Depreciation Schedule in just 5 working days where we don’t need to inspect or 5-10 working days if we do. And if your client is up against a deadline, let us know and we can turn it around overnight. 
5. 5. If you have a depreciation question or topic that you’d like us to explore, let us know! Get in touch with the team at affilates@depreciator.com.au.

Do all new properties need to be inspected?

The legislation is very clear on this. If the ‘actual cost of Capital Works is known’, it must be used. You can read more on that from the ATO here.

Typically, this happens with new houses and granny flats. There will be a contract with a total cost for the build and often a clear description of the inclusions.

That total cost is our starting point. Then it’s just a matter of estimating the value of the inclusions – Depreciating Assets. And when you have done tens of thousands (yep) of Depreciation Schedules on newly built properties, that’s not hard.

‘What about variations?’, some clients ask. If there was a variation and a cost on top of the contract prices, we’ll want that – there will be documentation.

And if people had to add, say, blinds and curtains after handover, they will have a cost for us to use.

‘My house had lots of upgrades’, is something some clients tell us. They are relevant if there was a price adjustment, but if the salesperson threw in stone bench tops, 2700mm high ceilings and gold plated taps in the bathroom for no extra cost to get the deal across the line, there is no extra depreciation.

But on the bright side, the clients got a better house for their money and will hopefully get a better rental return.

Renovations where the costs are available are treated the same.

But we hasten to add, if a client really wants us to inspect their new house (and charge them more) we will. We’ll still want to know the total cost just so we align with that and they don’t get into strife.

Brand new apartments can be trickier. The build cost of an apartment is never available, and there are the common areas. If we have not done a Depreciation Schedule in a building, we’ll want to inspect it. But after we have been into that building once, we won’t need to go back for subsequent jobs if we get sufficient information from the client – and the fee for these jobs will be reduced. 

Do you need to inspect properties where the build cost is NOT available?

Let’s ponder a typical mid range rental property – an enquiry that came in yesterday.

It’s a project home in the outer suburbs of Perth built in 2009. There is a floor plan online and three sets of photos from each time it was sold – nothing has changed.

The 2009 cost of the land is even there.

This particular job was referred to us by an affiliate and the instructions were, ‘I know the assets are not claimable, so I just want to know the Capital Works deduction.’

There is no necessity to inspect this property given the information available. But if the client wanted us to, then of course we would. And we would charge more. That sometimes makes them think twice.

What properties actually need an inspection?

Then there are the clients who get in touch and tell us they need a Depreciation Schedule but confidently state that the property doesn’t need to be inspected.

Their motivation always is to save a bit of money on our fee. A false economy, often.

We’ll have a chat with the client and have a look online and make up our own mind.

An apartment in a large building we have not been into will need to be inspected – and the results will invariably favour the client. There will be common areas perhaps with gyms and pools and goodness what else so it’s good to capture the depreciation there.

A house built on a tricky site? Often plenty of hidden costs associated with that sort of thing, so again an inspection would be beneficial.

A fancy architect designed house? Hard to do that without going there.

Most commercial properties have limited information online. To cost any Assets, we’ll usually need to inspect these as well.

What about an old house with renos? If it’s just a kitchen and bathroom, we might be able to do it without a visit. But if it’s, say, an old Queenslander that has been renovated over time, we’ll want to inspect it.

We did one recently and our Quantity Surveyor realised when he went there that the house had been moved sideways and raised. Lots of expense there, in addition to the beautiful job the previous owners had done internally. Our total Capital Works estimate was $327K. That’s over $8,000 per year our client can claim on renovations done by a previous owner.

Wondering how quickly we can deliver a Depreciation Schedule?

‘How quickly can you do a Depreciation Schedule?’

It’s a question we understandably get asked a bit at this time of year and we have covered it previously here.

‘Very quick’ is our answer if we don’t need to inspect the property. Overnight in some cases. 

We even turned one around the same day last week.

The accountant had referred the client to us a month ago and we had tried in vain to get the job going – we called, texted and emailed the client. Then the client found themselves sitting across the desk from the accountant who asked them for their Depreciation Schedule.

That accountant made a point of calling us when the client was in the room and asking us to help out with a particularly tardy client. We were happy to oblige. 

Is there a burning depreciation question you want us to deep dive into?

Imagine how hard it is to think up new angles on depreciation. It’s such a narrow area of tax, but one that we know very well.

Surely there is something we have not covered that you are curious about? Email us at affiliates@depreciator.com.au. Or call us on 1300660033 if there is anything you would like us to cover.

Enquire now for a property-specific assessment

Has this article reminded you about a client’s investment property? Residential properties, commercial properties, even farms, we do them all.

If you want us to talk to a client about a Depreciation Schedule, make a no-obligation enquiry and rely on our 20-plus years of experience in estimating depreciation returns.