MCG QUANTITY SURVEYORS BLOG
Overseas Investment Properties & Depreciation
Whilst it’s certainly not the sort of reports we target, a number of our clients own investment properties overseas. If you’re claiming the rental income in Australia, then you’re entitled to minimise your tax via having a depreciation schedule completed.
To date we’ve completed many reports for overseas investors in places like the United States, United Kingdom, Malaysia, India, New Zealand and more.
How do we do it?
Essentially, it all boils down to accurately estimating the costs. We’re experts in depreciation legislation in Australia of course, and also construction cost estimating across Australia. It’s important to remember that construction costs vary across Australia’s capital cities and regional areas. In fact, it’s 80% more expensive to build in Weipa (far north Queensland) than it is in Brisbane. The index is in Australia is based on the capital city of each state. So in Queensland it’s Brisbane with an index of 100, and Weipa has a regional index of 180.
When estimating construction costs overseas we need to consider the following;
- Typical construction costs in the closest capital or major city
- The regional index of the place we’re estimating (i.e. Jaipr vs New Delhi)
- The changes in construction cost over time (i.e. it was cheaper to build 2 years ago than it is today)
- The currency conversion rate
- The historical currency conversion rate at the time of construction
There’s a few tricks we have up our sleeve to find this information, but once we know the cost to construct in a particular city today, we’ll do the following:
- Apply any applicable regional index
- Apply local building price indices (these track the movements of costs over time)
- Apply historical currency conversion rate (from Euro’s to AUD for example)
Whilst all of our investor clients with properties in Australia will have their properties inspected by a member of the MCG team, overseas properties are not inspected in the same way.
The best information we can receive is floor plans, specifications lists and even actual costs when available. We’ve also pioneered a checklist which walks our on site contacts through the process of measurement, asset identification and cataloguing that enables us to complete the inspection remotely, often carried out by a property professional on the ground or the client themselves. I must assert however, that this remote method is never as good as actually being on the ground ourselves. Our staff are trained to detect improvements, renovations, plant assets and identify variations in the age of both building and plant components. We strongly advocate that properties within Australia do not have their depreciation calculated in this way. Additionally, if the information we receive is not up to scratch, we’ll keep working with the contact until we get exactly what we need prior to completing a report.
It boils down to the best possible method of capturing the specifics of the building overseas. As much as we’d love to travel overseas to inspect these properties ourselves, our clients wouldn’t not be pleased with a bill for overseas travel! It’s certainly too cost prohibitive.
However, when it is possible, it’s certainly a great way for investors to maximise their cash flow. In fact, our last overseas client achieved over $8,000 worth of depreciation on their home in Scotland. We’ll worth the effort if having a report done.