Don't forget Chattels Depreciation!

[Rosco]

Recent example of bad accounting advice, an investor had purchased a motel and the building alone was $1.9 million. The accountant hadn't recommended a chattels valuation, and with no more building depreciation from 1/04/11, they had claimed $0 depreciation. This is appalling!

• One option is: Under commercial rules you can actually still depreciate up to 15% of the buildings adjusted book value at 2% straight line depreciation.
• Or, a much better option, complete a chattels valuation. This has resulted in total chattels of $393,251, which will be depreciated long term. For the first 11 months this resulted in $32,517 depreciation and saved $10,730.61 tax at 33%! The cost was only $1,525. The future depreciation will be $360,734 and over the next 10 years approximately, this will save a further $119,000 in tax.


Ross

[kiwibean]

Hi Ross

I have a couple of questions that you should be able to help me with.

1. When getting a valuation on chattels and say they depreciate over 5 years what happens after that? Do you get another valuation if you have replace stuff in the house like curtains etc

2. Can you get a chattels valuation say a year after buying a property and does that still work? ie. is there a cut off time after purchase?

3. If you claim on chattels depreciating and say after 10 years you sell the property, I assume you have to pay back all of the depreciated value on this?

4. Do you recommend someone in the Wellington Region or does your company do all over NZ as my current accountant doesn't seem to give me any advise.

Thanks in advance.

[Wayne]

1. When getting a valuation on chattels and say they depreciate over 5 years what happens after that? Do you get another valuation if you have replace stuff in the house like curtains etc

When they are valued at 0 stop depreciating. If you purchase new ones start depreciation at the purchased value.

3. If you claim on chattels depreciating and say after 10 years you sell the property, I assume you have to pay back all of the depreciated value on this?

Only if the carpet or curtains or whatever are worth more than their depreciated value - unlikely as this stuff does wear out.

4. Do you recommend someone in the Wellington Region or does your company do all over NZ as my current accountant doesn't seem to give me any advise.

Valuit are in Wellington. A simple google would have found you that

http://www.valuit.co.nz/contact-us.aspx

[kiwibean]

Okay, so just need to find out about number 2. And If I can do this is it possible to claim for the previous years depreciation in this tax year?

Bit silly of me not getting this done at the time of purchase. Guess I will just have to let my tenants know that they will be having someone come around at some stage soon.

[Rosco]

Hi Kiwibean,

2) Often the valuer can work back, so one year should be no problem. Talk to Valuit about this, and they should be able to explain. So for example you purchased in April 2014, and it is completely OK to get chattels valuation done now.

Previous years - if you have elected (by filing your tax return) not to claim chattels, then you can't go back and change them.
Going forward - IRD argue that you have elected for the life of that property, not to depreciate the chattels, so should change.
Most tax experts/advisors would argue that you can change, and start depreciating chattels. For 1-2 years missed, this could be workable, but if missed more year, probably out of luck. If missed first year, have to work out notional book values, and then continue depreciating from there. Note that IRD still don't overally like this.

We have clients all over NZ, so give me an email and we can organise a free chat for 10 minutes to see how we can help you.

Ross

[mrsaneperson]

Hi Rosco,

I have a chattels valuation done back in 2003 for one rental property . Can i still claim depreciation on the following items listed and valued in the chattels valuation list:

Fitted furniture
Non load bearing partitions
Gas reticulation
Garage door
Ceramic tiles
Plumbing fixtures
Electrical reticulation

Or are the above limited descriptive terms somewhat a grey area for depreciation?

In the same valuation - 2003 , i now realize the valuer had not sited a retaining wall and consequently neglected to mention a value for this. This particular retaining wall Ive recently had a quote to repair for around $20k.
Can i retrospect a value for this due to it been erroneously left out?