Site inspections are the best way to minimise risks and maximise depreciation deductions

In a white paper released in August 2023, the Australian Institute of Quantity Surveyors (AIQS) outlines the importance of a site inspection as a reliable and accurate way to maximise the depreciation deductions on your investment property.

The Quantity Surveyor's Guide to Residential Tax Depreciation is a comprehensive framework that provides details on how quantity surveyors can minimise risks for investors. It validates the BMT approach to property depreciation, insisting that a physical site inspection by a depreciation specialist ensures the most reliable result, delivering maximum depreciation deductions on an investment property.

Reasons

The AIQS highlights that not conducting an in-person site inspection could result in depreciation deductions being missed and essential tax return information being overlooked.

The expertise of a property depreciation specialist becomes critical when dealing with the complexities of calculating depreciation deductions on a second-hand property, where renovations and improvements are often hidden from the inexperienced eye.

According to our own BMT data, gathered over the course of completing close to 1 million depreciation schedules, 66% of investment properties have undergone some form of renovation or upgrade.

The quantity surveyor's expert knowledge will guarantee the identification of as many qualifying plant and equipment assets as possible to ensure maximum deductions. On-site inspections by a specialised quantity surveyor can also reveal hidden deductions that may otherwise be missed.

Depreciation can be claimed by the current property owner for renovations and upgrades made by a previous owner. The ATO often requires evidence to justify these deductions in a depreciation schedule and without a site inspection by a depreciation specialist, it is impossible to identify every depreciable asset including wiring, plumbing and other hidden expenditure.

Even if the construction costs and/or a construction contract are supplied, it may still be necessary for the quantity surveyor to estimate the cost of components within the total construction cost, especially as it relates to Division 40 plant and equipment, which is another important step in the site inspection process.

Risks

If the quantity surveyor is unable to perform a site visit and is obliged to make inferences regarding proposed deductions, the quantity surveyor must furnish the client with a formal addendum, outlining the reasons for this limitation, acknowledging potential inaccuracies in the report and disclosing potential risks to the client, absolving the author of any liability. This position is endorsed by the AIQS and the National Tax and Accountants’ Association.

In case of an audit, the absence of a site inspection may impact the outcome, as non-compliance with ATO and AIQS regulations can lead to the rejection of the depreciation schedule. It is therefore important that property investors recognise that once a schedule is finalised, the quantity surveyor responsible for its preparation bears no responsibility or liability for any potential audits in the absence of a site inspection and subsequent inaccuracies.

It is essential that a quantity surveyor does not inflate or understate the potential depreciation deductions available to the client as this can lead to the client's lodgment with the Australian Taxation Office (ATO) being incorrect. This could result in additional tax, penalties and interest being imposed by the ATO and an unreliable depreciation schedule can also lead to an investigation by the Tax Practitioners Board.

Returns

As experts, quantity surveyors are equipped to accurately calculate and maximise the depreciation deductions on an investment property ensuring accountability with best practice as outlined by the AIQS and ATO. The Quantity Surveyor's Guide to Residential Tax Depreciation promotes industry-wide consistency, prevents unethical practices, and ensures the protection of clients, accountants, and quantity surveyors. An in-person site inspection is therefore decisively the most accurate and reliable way to maximise the depreciation deductions on your investment property, which is why we, at BMT Tax Depreciation, always insist on one.