Depreciation schedule/ special building write-off obligations

I recently purchased my first IP in October last year in Queensland and have recently read in 2 books that the vendor of the property (if they used it as a rental) MUST supply their depreciation schedule AND supporting documentation in order for me to calculate the special building write-off.

I didn't ask for this at time of sale and have not been provided with it.

How much should/can I pursue this from the vendor (nearly 5 months down the track)? Also, I have since asked for (and been supplied) the original construction cost by the local regional council by email. I am guessing that this would not be enough to allow me to claim this as the true construction costs or is it actually this easy??? This cost was provided as simply a number with no supporting documentation.

Next IP purchase i will be more vigilant, but do other investors out there pursue this info rigorously or just wait till you get your own quantity surveyor to sort it out before tax time? I'm interested in your thoughts as I can't find a relevant thread on this forum dealing with this.

Cheers

I'm not sure where that's written - but I've never heard of it being a "MUST requirement" for property transactions.

You can certainly ask for them as part of the sale process, but your odds of getting them now are almost 0, unless the vendor is being generous.

Are you sure the book wasnt saying YOU must get them done, due to the depreciation?

From the ATO NAT 1729.6 2010 - Rental Properties 2010

And I quote:



"Where you purchase a rental property from an unrelated
party, one objective means of establishing your cost of
depreciating assets acquired with the property is to have
their value, as agreed between the contracting parties,
specified in the sale agreement. If separate values for
depreciating assets are not included in the sale agreement
for your rental property when you purchase it, you may be
required to demonstrate the basis of your valuation."


Does this happen in reality? I'd say no in 99.9% of cases.

So then yes you generally end up going to get your own Depreciation Schedule.

Further to Neil's post, with many contracts for commercial properties, there are values ascribed to the Assets (fixtures and fittings). As Neil said, this doesn't happen with residential properties.

But herewego was asking specifically about buiding costs.

MUST supply their depreciation schedule AND supporting documentation in order for me to calculate the special building write-off.

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I don't think there is a requirement that a Depreciation Schedule be handed over, because often one does not exist. But if the actual construction cost is known by the vendor (in the case of a brand new home, for example) there is a requirement that it be handed over. Goodness knows how this could ever be enforced and it probably never has. You would have to try and bluff it. Puff your chest out, cross your fingers, and say, 'You do know that there is an ATO requirement that you tell me what the build price was?'
Of course, getting the build price only takes you part of the way toward being able to put together a Depreciation Schedule, though it might help you negotiate a better price with the QS you use.

Scott

http://law.ato.gov.au/atolaw/view.htm?locid='PAC/19360027/262A(4AJA)'#262A(4AJA)

262A(4AJA) [Assessments for 1997/98 year onwards]

If:

(a) a person (the transferor) disposes of capital works within the meaning of Division 43 of the Income Tax Assessment Act 1997, being capital works begun after 26 February 1992, to another person (the transferee); and

(b) a deduction has been allowed under former Division 10C or 10D of Part III of this Act, or under Division 43 of the Income Tax Assessment Act 1997, in respect of those capital works;

then:

(c) the transferor must give the transferee, within 6 months after the end of the year of income in which the disposal occurred or within a further period allowed by the Commissioner, a notice containing such information as will allow the transferee to work out how Division 43 of the Income Tax Assessment Act 1997 will apply to the transferee in respect of the capital works; and

(d) the transferee must retain the notice or a copy of it until the end of 5 years after the transferee disposes of the capital works or the capital works are destroyed, whichever is the earlier.

Click to expand...

I haven't met anyone exercising their rights with this section though.

Thanks guys,
Yep Mry, that section 262A(4AJA) was the exact one I was talking about (sorry I forgot to put that in my original post). I hadn't ever heard of buyers trying to enforce it but I only have the one IP so thought that I should ask.

Looks like the email quote won't cut it (as i thought) and I'll just rely on the QS report. Maybe it's a "rule" we can all take to our next purchase and insist on the info at sale time.

Now that Ive looked it up properly again one of my books says...
"Consider that section 262A(4AJA) can be used against you when you sell the property... though in reality we have never heard of it being enforced. It is important to do the best you can while you are the purchaser. The vendor's depreciation schedule is not enough; supporting documentation would be necessary for an audit."

I guess i can say at least i am not the only one who missed it!

Honestly, mindlessly relying on a QS report that you commission for new builds / purchases is usually the best course of action in almost every instance when it comes to depreciation.

I requested the information from a Vendor several years ago when I purchased a property. The Vendor and their solicitors failed to respond, but at least I have my requests if the ATO ever audits. I asked the QS also to give me an estimate of building costs for insurance purposes so that I could ensure I had sufficient cover.