Chattels Assessments:
We can help Christchurch property investors maximise their depreciation claim for tax purposes by providing a customised chattels valuation, better defined as a depreciation schedule or apportionment.
What do the Budget 2010 changes to property depreciation tax mean?
In summary, come 1 April 2011 property investors will:
- lose the capacity to claim depreciation on buildings
- maintain the right to claim depreciation on anything that the IRD deems is not part of the building i.e. chattels
What will it mean to building depreciation come 1 April 2011?
Building depreciation deductions will no longer be allowed for buildings with an estimated useful life of 50 years or more, from the 2011-12 income year. See the IRD’s Building Depreciation Fact Sheet.
The depreciation rate of buildings will reduce from 3% DV (diminishing value) to NIL.
Basic example: if your total investment property improvements (i.e. property value – land value = buildings) are $500,000 and you are claiming at the building rate of 3% (which is more than likely) you will currently have a depreciation claim of $15,000 – this will be gone!
Although this will affect cashflow, this change does remove the hazy issue of ‘depreciation recovery’ on sale of a property going forward – as buildings typically increase in value over longer periods of time, unlike chattels.
Will I still be able to claim for chattels?
YES!
Building owners will still be able to claimdepreciation deductions for ‘fit outs’ not considered part of the building i.e. chattels.
As chattels genuinely depreciate in value over time (generally unlike buildings) the IRD view this area of depreciation legitimate.
I haven’t claimed chattels in the past – should I start now?
Our area of expertise is in providing professional chattels assessments or depreciation schedules – not taxation advice – so we urge you to discuss the benefits of a chattels valuation with your accountant.
But the bottom line is: if you are not currently claiming a split on your purchase price (i.e. buildings + chattels), next year you will be no longer able to claim any depreciation – nothing, nada, nil!
Generally your goal should be to maximise your depreciation claim in order to maximise your cashflow. Post Budget it is even more important to cover all bases as the depreciation opportunities have been reduced.
We think it makes more sense than ever to maximise your depreciation claim through a ‘Chattels Valuation’.
IMPORTANT NOTE: a chattels valuation is a one-off cost– and therefore a small investment for on-going, future savings.
The report becomes the ‘base-line’ reference for your accountant for ‘year one’ – every year moving forward they use the relevant depreciation rates to continue your claims.
Chattels are moveable and removable components within a building such as:
- heat pumps!
- carpets
- curtains
- dishwasher
- stove
- lightfittings
- flooring
- and don’t forget…heat pumps…these alone can add significantly to a claim!
The technical definition refers to ‘an allowance for wear and tear on an asset over its useful life’. In other words an allowance from the Inland Revenue Department for the fact that, over time, assets wear out.
The positive aspect of depreciation is that it is a non-cash expense – an expense you can claim in your accounts that doesn’t really cost you anything. Claiming an expense in your accounts means you pay no tax on that expense.
The more depreciation you can rightly claim, the less tax you pay, and obviously the more cash you have in your pocket.
What is a chattels valuation report or depreciation schedule?
As different assets last for a different period, different assets have different depreciation rates.
NOTE AGAIN: a chattels valuation is a one-off cost – and therefore a small investment for on-going, future savings.
The report becomes the ‘base-line’ reference for your accountant for ‘year one’ – every year moving forward they use the relevant depreciation rates to continue your claims.