Chattels Valuation changes 1.4.11 ????

[Bluekiwi]

http://propertyblogs.co.nz/2010/05/21/budget-2010-commentary-from-a-depreciation-perspective/

I bought 4 properties from 1.4.09 to 31.3.2010 in South Auckland.
There has been no accounting work done to calculate land - building - chattels.
Stever Tuckers 21/5 column says "If you havent yet had a split on your purchase price get it done now to take full advantage of the new taxation system".
What is new in the tax system that chattel valuation can take advantage of, as I thought the new rules only affect building depreciation".

[J_J]

I think that the idea is that you should now make the chattels are larger proportion of the value of the purchase price because it can still be depreciated.

[Bluekiwi]

I think that the idea is that you should now make the chattels are larger proportion of the value of the purchase price because it can still be depreciated.

I was suspicious of that.
But 4% compared to 14% or whatever it is, wouldnt people already be doing that ?

[J_J]

I am not exactly up to speed with Depreciation either.

My accountant has valued the chattels in my properties at zero because they are older houses with old chattels that are practically worth nothing. Do you have to itemise each chattel out with an approx value or can you just assign a % of the purchase price?

[Bluekiwi]

Chattlels valuation will cost me about $1,600 for all 4 properties.
Thats a cost now.

I wonder what I will gain for that.

Is my loss going to be significantly greater than if my accountant just does it.

[Valuit]

Chattels depreciation the benefits

In the past some accountants have suggested that you do not bother getting a split of your purchase price into all of the different IRD categories (Chattels Valuation) There was a couple of reasons for this
* the prospect of having to pay some of it back when selling through depreciation recovery
* Uncertaintanty over what rate could be applied to some items such as plumbing etc.
* A lack of understanding from many accountants on the full benefits.

With the reduction of the building depreciation rate from 3% to 0% this will in effect remove the depreciation recovery upon sale that would have been incurred prviously. (REASON 1 GONE)

In early May IRD issued an interpretation statement that clarified what depreciation rates should be used for items such as plumbing where there had been some confusion. (REASON 2 GONE WE NOW HAVE CLARITY)

Many accountants do not have a specialist focus on property and as a result are not up to speed with the benfits of maximising your depreciation claim through a "Chattels Valuation" there is a lot of them and it is tough to educate them all. (STILL A STICKING POINT)

At the end of the day depreciation is all about cash-flow! IRD accepts things do wear out, for property investors most of these items are specified in the IRD Depreciation Schedule under the headings of "Residential Rental Chattels" and "Building Fit-out". Depreciation can be claimed on these individual items at 3% - 60%. Obviously to do this you will need to have individual values attributed to the items. The key is to maximise depreciation and this is more important post budget as the benefits have been reduced. To maximise depreciation it helps to use a specialist that understands firstly what can still be separated and secondly place an appropriate value on the items. (This is not just a matter of looking at second hand prices, it must all relate back to your total purchase price)

Our cost to do this is $350 + GST (currently 12.5%) and the savings will generally offset this few with weeks.

If the property is owned in a trust the question will become how long before you can utilise those losses. BUT at the end of the day lossess are lossess and I'd rather not pay tax on money where I do not need to now or in the future.

If you do not currently have a split )Chattels Valuation) come next year you will get NO depreciation claim. For thos that have previously claimed you will be looking at approx a 50% reduction in depreciation but this is certainly better than NONE

A very quick example, if your property improvements are currently $1000,000 and you are claiming it all at the building rate of 3% you will have a depreciation claim of $3,000 - this will be gone!!!
With a Chattels Valuation you would currently be claiming approx $6,600 after the reduction of building rate you will still be claiming $3,600 !!!!!!! STILL MORE THAN THOSE THAT WERE ONLY CLAIMING IT AT THE BUILDING RATE!!!!!!!!!!

[cube]

With the reduction of the building depreciation rate from 3% to 0% this will in effect remove the depreciation recovery upon sale that would have been incurred prviously. (REASON 1 GONE)

Is depreciation claimed on chattels not subject to claw-back (or is a valuation on sale always done to ensure that the sale value is the book value?)

Thanks

cube

[Bluekiwi]

How about purchasing new property.
I heard there may be some leeway to purchase a property and specify the purchase.

ie.
Land 100k
Building 100k
Chattles 100k

Just as an example.

[Valuit]

clawback & Specified price

Anything is subject to clawback if it has increased in value. It is very very very difficult to prove that chattels increase in value. The building component does generally increase over a long period due to rising construction costs etc. (TECHNICAL REASONING IN BEHIND BUT THE GOVERNMENT IS IN EFFECT CORRECT ON THIS IN 99% OF INSTANCES) So simple answer is that clawback should no longer be an issue.

As far as specifying a breakdown of items when you buy a property you do need to be very very very very careful here. They must be reaslistic or you could be done for TAX EVAISION. You also need to make sure that better figures could not be calculated by the likes of myself using the formulas and tools that we are required to use.

[graemeh]

Is depreciation claimed on chattels not subject to claw-back (or is a valuation on sale always done to ensure that the sale value is the book value?)

Thanks

cube

If your purchaser will accept it you put the chattels in at book value in the Sale and Purchase agreement.

This means there is no depreciation recovery as you sold it to someone at that price.

As long as the purchaser is not associated with you in some way the IRD must accept the values in the agreement as you really did sell the house for $120,000 and the land for $400,000 or whatever.

[graemeh]

As far as specifying a breakdown of items when you buy a property you do need to be very very very very careful here. They must be reaslistic or you could be done for TAX EVAISION. You also need to make sure that better figures could not be calculated by the likes of myself using the formulas and tools that we are required to use.

How is it tax evasion when it's an "arms length" transaction?

[One]

With a Chattels Valuation you would currently be claiming approx $6,600 after the reduction of building rate you will still be claiming $3,600 !!!!!!! STILL MORE THAN THOSE THAT WERE ONLY CLAIMING IT AT THE BUILDING RATE!!!!!!!!!

So you can start to claim depreciation on a chattel even when you've owned it for years and haven't claimed for it before? I didn't realise that.

Great info, thanks.

We're already claiming for most of the chattels in our IP but that IRD paper shows a couple of others we could claim.

[spurner]

How about for existing properties on which you had claimed depreciation on the improvements and some of the chattels, over the previous few financial years.

Is it possible to now get a proper chattels valuation which specifies all the electrical/plumbing components etc which can be depreciated? Or are we stuck depreciating only the items at the old rates we had in the previous year/s?

[Orkibi]

Is it possible to now get a proper chattels valuation which specifies all the electrical/plumbing components etc which can be depreciated?

In regard to the above, I think the question should be if electrical/plumbing would/could be NOW after the budget depreciated at-all or are they now part of the Improvement/Building at 0% - ???

I used ValuIt for 3 properties last year and find them much better and detailed then a not specialized valuer.

I believe chattel depreciation is so important at the moment, so I now run a promo offer to pay for chattel valuation or contribute for my client when buying an IP thorough us.

Like have a look here: http://us1.campaign-archive.com/?u=7...f&e=7f56b396fb

[Bluekiwi]

For properties bought last year, and tax return due - soon.
The mechanics of when I get a Chattels valuation done, are that I need it in June to have my accouts ready July.
I cant defer it at all ?