Maximizing Tax Benefits: The Importance of a Depreciation Schedule and Inspection for Your Investment Property 

I’ve just recently presented the new Tax Depreciation Guidelines to depreciation specialists across Australia on behalf of the Australian Institute of Quantity Surveyors. This new industry guide sets out the best practice for Quantity Surveyors and what clients should expect. 

There’s been a rise in companies suggesting that depreciation reports can be completed adequately without the need for an inspection. However, the new guidelines specifically state that there are extreme risks with this approach, and instances where an inspection is truly not required are uncommon. 

 

The guidelines state that an inspection should be carried out to:

1. Ensure that the information detailed in tax depreciation reports has been verified; 
2. To provide a report that achieves the optimal correct outcome for the client; and to 
3. Minimize potential risks to quantity surveyors and their clients. 

 

There are indeed circumstances where an inspection may not be required. However, these are limited to:  

1. When detailed and verified final building costs are provided, along with specifications and floor plans, or 
2. The client only qualifies for building structure deductions, and it has been confirmed that no improvements have been completed since the last inspection (that is to say, the property has already been appropriately inspected and nothing has changed). 

 

The guidelines additionally state that not undertaking a site inspection leaves both the client and quantity surveyor open to sanctions/fines which may be imposed by the ATO, should there be insufficient evidence to support a depreciation claim. 

Where an inspection is not carried out, the following disclaimer must be added to the reports: 

 

This report is not based upon and does not include a physical inspection of the premises. This may impact the accuracy of this tax depreciation report and the author of this report takes no responsibility or liability for any such inaccuracy. 

 

So, whilst an inspection can be avoided in some cases, it’s only appropriate when exact costs are known or an inspection has already been completed on the property in the past. The risks heavily outweigh the benefits, and a detailed full inspection of a property is still the only way to ensure you’re achieving the highest possible depreciation deductions whilst complying with all relevant legislation.