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Rental Property Tax: No Construction Cost Record? What to do
There is a strong possibility that the investment property you buy will not have reliable records available reflecting the construction costs way back then. Yet, because these are claimed as tax deductions over a very long period, there’s value in it for you to start claiming the remaining amount of the depreciating costs yourself. What can you do? Baxton Property Management in Hobart offers some possible solutions.
Basically, if you can’t find reliable records to back up your claim, you will have to estimate the construction costs, so you can pick up where the last owner left off, and calculate your own capital works deductions. If the building was constructed prior to 17 July, 1985, no deductions are allowed or buildings constructed for residential purposes or to earn an income, so there is no need for you to worry about construction costs.
Who can estimate construction costs?
According to the tax regulations, valuers, estate agents, accountants and solicitors are not allowed to assess the construction costs, unless they are otherwise qualified to make a reliable estimate. The cost of any of the following experts is recognised (and deductible in the income year in which the payment was made).
The tax man will allow you to use the following people to assist you in estimating construction costs:
- A Clerk of Works: Someone who is, for example, the project manager for a large construction company.
- A Supervising Architect: This is an architect who approves payments for stages in a building project.
- An Experienced Builder: This builder would have to have experience in estimating costs for similar sized projects.
- A Quantity Surveyor.
How to calculate the deduction
Let’s pre-suppose you bought the property on 19 July, 2016, and you want to work out the deduction for the 2016/2017 tax year. The construction costs that will act as your base cost, were estimated by a quantity surveyor to be $115 000.
Construction costs are multiplied by the rate applicable to the year of construction by the proportional amount of the year for which you are able to claim. That means the number of the days during the tax year that you owned the property and used it to generate a rental income.
In our example that would involve multiplying $115 000 (the construction cost) by 2.5% (the applicable rate) and then multiplying that by 346/365 days (a full year less 19 days as you bought it on 19 July). The total deductible would be $2 752.
Estimating the construction costs of a pre-existing building can be a bit of a nightmare, but it is essential to ensure that you, as a rental property owner, enjoy the maximum tax benefits allowable under the law.
If sorting out something like tax deductibles on your new rental property is not headache enough, now you have to manage your property. Why not turn this time consuming task over to the experts? We at Baxton have many years’ experience in managing property. Visit us at the Baxton website for more info.
Written and syndicated by
– Baxton Media.
- Tax: Maximising owner benefits?
- Rental Income Tax: Understanding low-cost vs low-value assets
- 6 things you can claim to maximise tax savings
We hope you enjoyed this article
The information contained in this article is based on the authors opinion only and is of a general nature which is not indicative of future results or events and does not consider your personal situation or particular needs. Professional advice should always be sought relevant to your circumstances.
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