• Login:
Welcome, Register Here
follow PropertyTalk on facebook follow PropertyTalk on twitter Newsletter follow PropertyTalk on LinkedIn follow PropertyTalk on facebook
Page 1 of 4 1 2 3 ... LastLast
Results 1 to 10 of 40
  1. #1

    Default Chattels Valuation

    Hi All

    My accountant tells me that Chattels Valuations for claiming depreciation are probably only worthwhile for commercial or high value domestic properties owing to the cost of getting one done.

    I have an older IP in Palmerston North which I wouldn't consider a high value property but it is definitely above average as it rents for approx. $30pw more than an average house in the same location. Does anybody think this would be worth paying to get a chattels valuation done?

    Shar

  2. #2
    Join Date
    Jun 2005
    Location
    Auckland
    Posts
    925

    Default

    Yes I would recommend a chattels valuation, althought it might depend on the value fo your chattels. You say it is an older property, which means the chattels are older unless the place has been renovated with newer items. Newer items generally depreciate more than older ones.

  3. #3
    Join Date
    Jan 2005
    Location
    Napier
    Posts
    22

    Default

    Hi

    I have only been in this game for a couple of years but have certainly found chattels valuations to be of benefit when in comes to tax time! We normally try and get agreed chattels values when purchasing but sometimes purchasers don't want to do so due to tax implications for themselves (especialy if the property was a rental for them) so the alternative is to get a valuation undertaken asap on taking posession. Perhaps if you have had the property for a while already then it might be a bit different in terms of benefit tax wise. The best time to do it would be at purchase time.

    cheers

  4. #4
    Join Date
    Feb 2004
    Location
    Newcastle-under-Lyme
    Posts
    3,066

    Default

    Hi Shar

    I concur with your Accountant. Since the total amount depreciable shouldn't change with a chattels valuation, what you are really paying for is a change in the timing of the depreciation, you are bringing some of the money you get forward by increasing (in theory) the amount of chattels and decreasing the value of the structure of the house.

    Personally I'm not keen on paying out money to change the timing of when other money arrives unless that other money is going to earn me more than I have spent. This seems unlikely so we don't get chattel valuations.

    Cheers David

  5. #5
    Join Date
    Jun 2005
    Location
    Auckland
    Posts
    925

    Default

    Let me provide you an example.

    A property I purchased in 2001 was a brand new property, and so had all brand new chattels. I got a chattels valuation done and it came to 97k worth of chattels. If I had not got a chattels valuation, those items would have depreciated at 4%, which means I would have claimed $3880 in the first year. What I actually claimed was $11000. The valuation only cost me about $300 I think.

    Of course in future years the depreciation will be less, but $1 today is worth more than that same $1 in 5 years time due to inflation. So the sooner you get your hands on it, the sooner you can get it working for you.

  6. #6
    Join Date
    Feb 2004
    Location
    Newcastle-under-Lyme
    Posts
    3,066

    Default

    97K of Chattels!

    How Many Ovens did it have?

    Seriously, thanks for the example, this is the sort of time that a chattel valuation seems worthwhile to me. But as we generally don't buy new houses (Both for aesthetic and financial/investment reasons) and since we generally buy what could be generously referred to as cheapies...

    A chattel valuation has never been likely to return us more money than it cost us (I figure this out by figuring how much the extra money we would get from the new valuation in terms of depreciation would earn us plonked in a long term deposit)

    I am also somewhat philosophically loath to get depreciation early, its too tempting to spend it.

    We view the money we get back from taxes through depreciation as house repair money, and it goes into our properties bank account until we need it to repair them with it...

  7. #7

    Default

    Hi Guys

    Thanks very much for your detailed replies. There seems to be divided opinion so I think I will need to read up about more about depreciation to understand it better!!

    Shar

  8. #8
    Join Date
    Feb 2004
    Location
    Newcastle-under-Lyme
    Posts
    3,066

    Default

    Making sure you understand it is always the best option Shar

    I think (correct me if I'm wrong guys) that the rough conclusion of this thread has been get a chattel valuation if and only if it is likely to cover the cost of getting the valuation done in terms of the money that can be earned from the extra depreciation.

    Cheers David

  9. #9
    Join Date
    Jun 2005
    Location
    Auckland, New Zealand
    Posts
    82

    Default

    We find that in the majority of circumstances it is worthwhile having a chattel valuation completed for tax purposes.

    What do we mean by worthwhile? You will receive more than our fee back in the first year in increased depreciation that you will be able to claim by having a full apportionment completed.

    My accountant tells me that Chattels Valuations for claiming depreciation are probably only worthwhile for commercial or high value domestic properties owing to the cost of getting one done.
    Not so. A couple of examples

    1. A commercial warehouse that is literally a shell. We will find it hard to get sufficient increased depreciation out of. In this instance we talk to the investor over the options and other benefits of the chattel valuation.

    2. True story. Property was purchased for approx $500,000 as an IP. We did not end up by doing a chattel valuation for this client as the land was worth $495,000 and the "outhouse" was worth the remaining $5,000.

    What you need to consider is the proportion of the land from the Registered Valuation as a percentage of the Market/ Capital value. This has a large bearing on as to if a chattel valuation is worthwhile.

    We normally try and get agreed chattels values when purchasing but sometimes purchasers don't want to do so due to tax implications for themselves (especially if the property was a rental for them
    I would suggest that you should be careful in doing this in that you may be undervaluing the chattels and therefore not getting as much depreciation as you would have achieved if a specialist chattel valuation had been completed after purchase of the dwelling. On the upside you maybe overvaluing them and claiming depreciation on an amount higher than what we could achieve! However this means that we would then have less to distribute amongst the remaining chattels that do not have assigned values in the S&P agreement that may have higher depreciation rates. You need to consider the net overall effect.

    Since the total amount depreciable shouldn't change with a chattels valuation, what you are really paying for is a change in the timing of the depreciation, you are bringing some of the money you get forward
    What you are doing by having a chattel valuation is claiming the correct depreciation rate for that particular asset (as advised by the IRD). Lets take carpet as an example. By breaking the carpet out as a separate identifiable item, placing a specific value on the carpet, you are able to claim depreciation at 33% (diminishing value) giving an estimated life span of 5 years. (The longer the estimated life span the lower the depreciation rate). If the carpet had not been identified as a separate item depreciation could have still been claimed but possibly at 4% (estimated lifespan of 50 years) with the rest of the house. In effect what is happening is the depreciation reflects the approximate lifespan of the asset so that you can replace it when it wears out. The asset will depreciate to the same nominal value. In the case of carpet it is whether this happens over 5 years of 50 years.

    The depreciation then reflects the expected lifespan of that particular specific item.

    ... by increasing (in theory) the amount of chattels and decreasing the value of the structure of the house.
    We are not increasing chattels nor the value of the chattels but placing a value on the specific chattels purchased with the dwelling and that reflects their cost as a portion of the total purchase price of the dwelling. To do this we follow a couple of IRD formulas.

    I'm not keen on paying out money to change the timing of when other money arrives unless that other money is going to earn me more than I have spent
    As noted before we generally are able to increase the amount of depreciation that you are able to claim in the first year to the extent that the increased depreciation claimed is more than our fee. The subsequent years are a bonus for you. As Rentmaster has also point out there is the time value of money and also the increased cash flow in the first years when may IP's struggle to be +ive cf. A chattel valuation is the cream on the cake and can assist with a bit of cash flow earlier on.

    Seriously, thanks for the example, this is the sort of time that a chattel valuation seems worthwhile to me
    This is very typical of the outcomes we are able to achieve. Palmerston North may be a little different with lower purchase prices... but still the outcomes are very positive.

    A chattel is not necessarily just an oven but can include pretty much everything from the letter box at the front gate, the concrete path to the front door, curtains, carpets, stoves, kitchen cabinets, bathroom fixtures, floor coverings, internal non-load bearing walls, TV aerial on the roof, the garden shed, to the back fence etc. (As per the IRD Tax guide).

    we generally don't buy new houses (Both for aesthetic and financial/investment reasons) and since we generally buy what could be generously referred to as cheapies...
    It does not matter the age of the house is, it comes down to the purchase price (which reflects, age, condition, location etc) which is effectively the market value. We have to apportion the purchase price over the entire property. There is an IRD formula that provides a breakdown of the purchase price between Land (does not depreciate), Building Structure (depreciates at 4%) and Chattels (depreciate anywhere between 7.5% and 50%). If this formula provides a sum of $50,000 for chattels we have to apportion this over all of the chattels - irrespective of age, condition etc. The key is to split this $50,000 so that it accurately reflects the age, condition etc of all of the chattels.

    We view the money we get back from taxes through depreciation as house repair money,
    This is exactly what it is for. Depreciation is a financial acknowledgement that the assets wear out over time and will need replacing.

    There seems to be divided opinion so I think I will need to read up about more about depreciation to understand it better!!
    Shar - feel free to contact me by Private Message or email ([email protected]). With some basic figures I will be able to tell you if it is going to me worthwhile getting as full report completed on your property in Palmerston North. Alternatively feel free to ring Alastair of our organisation who does the chattel valuations in Palmerston North (0508-482-583) to discuss the benefits.

    I think (correct me if I'm wrong guys) that the rough conclusion of this thread has been get a chattel valuation if and only if it is likely to cover the cost of getting the valuation done in terms of the money that can be earned from the extra depreciation.
    Generally the fee is not an issue as it is nominal (in our case $325 plus GST for a standard house) considering the overall benefits.

    Other benefits include -

    A full breakdown of chattels, their values and the IRD depreciation rates.

    Reduced risk of penalties. This means if you are ever audited by the IRD you have substantiated values by a specialised independent third party (See our comment in the January 2005 edition of KPI in the Experts Forum)

    Easy disposal of assets. If you ever replace an item you have an accurate book value that can be written off (as opposed to your accountant taking a (conservative) guess as to its value). The new chattel is depreciated at its receipted costs.

    Minimise depreciation recovery. The report can be utilised to assist in minimising depreciation claw back when you sell the property.

    Increased cash flow by maximising the depreciation you are able to claim.


    Regards

  10. #10
    Join Date
    Sep 2003
    Location
    High up above and deep down under
    Posts
    10,915

    Default

    Hi Warren

    On behalf of PropertyTalk I would like to take this opportunity to thank you for the comprehensive answer to Shar's question about the viability of having a chattels valuation done.

    Regards
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx


 

Thread Information

Users Browsing this Thread

There are currently 1 users browsing this thread. (0 members and 1 guests)

Similar Threads

  1. Question about chattels valuation
    By alpine in forum Property Investment (NZ)
    Replies: 12
    Last Post: 14-08-2017, 07:47 AM
  2. Chattels Valuation
    By propNZ in forum Finance, legal and tax (NZ)
    Replies: 6
    Last Post: 28-07-2016, 11:13 PM
  3. retrospective chattels valuation?
    By Transient in forum Finance, legal and tax (NZ)
    Replies: 5
    Last Post: 09-06-2016, 08:08 PM
  4. Chattels Valuation - Fully Furnished IP?
    By ilusiv in forum Finance, legal and tax (NZ)
    Replies: 5
    Last Post: 15-01-2013, 02:14 PM
  5. Chattels Valuation changes 1.4.11 ????
    By Bluekiwi in forum Property Investment (NZ)
    Replies: 14
    Last Post: 01-06-2010, 11:49 PM
  6. Chattels Valuation Explained
    By Marc in forum Property Investment (NZ)
    Replies: 0
    Last Post: 03-11-2009, 08:13 PM
  7. Can I do my own chattels valuation?
    By milodavies in forum Finance, legal and tax (NZ)
    Replies: 6
    Last Post: 14-11-2006, 05:18 PM
  8. Is my chattels valuation worthless??
    By Rolf in forum Finance, legal and tax (NZ)
    Replies: 30
    Last Post: 16-06-2005, 10:51 AM
  9. Chattels Valuation
    By FreezingHot in forum Welcome Newbies!
    Replies: 11
    Last Post: 28-04-2005, 10:19 AM
  10. Propertytalks November Newsletter was Sent last Night!
    By Marc in forum Property Investment (NZ)
    Replies: 0
    Last Post: 09-12-2004, 09:50 AM

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •