| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011829471626
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: Rental property - depreciation schedule
Question
Are you able to use a depreciation schedule prepared by an Australian quantity surveyor to claim deductions for capital works and decline in value on your foreign rental property?
Answer: Yes
This ruling applies for the following period
Year ending 30 June 2011
The scheme commences on
1 July 2010
Relevant facts and circumstances
You own a rental property in Country X.
Your accountant has advised you to obtain a depreciation schedule for the property.
A registered quantity surveyor is not available in Country X.
You have employed an Australian firm of registered quantity surveyors to prepare a depreciation schedule for a property you own in Australia.
You would like the firm to prepare a depreciation schedule for your property in Country X.
Relevant legislative provisions
Section 40-25 of the Income Tax Assessment Act 1997
Subsection 40-30(1) of the Income Tax Assessment Act 1997
Section 43-10 of the Income Tax Assessment Act 1997
Reasons for decision
Section 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for the decline in value of a depreciating asset to the extent that it is used for the purpose of producing assessable income.
A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used (subsection 40-30(1) of the ITAA 1997).
Section 43-10 of the ITAA 1997 allows a deduction for construction expenditure on capital works. A capital works deduction is generally claimed at a rate of 2.5% over 40 years and is for expenditure in relation to the construction of:
(a) a building;
(b) an extension, alteration or improvement to a building; or
(c) a structural improvement not included in (a) or (b) such as a retaining wall.
Capital works deduction - estimating construction costs
Where a new owner is unable to determine precisely the construction expenditure associated with a building, an estimate provided by an appropriately qualified person may be used. Appropriately qualified people include:
· a clerk of works, such as a project organiser for major building projects
· a supervising architect who approves payments at stages of projects
· a builder who is experienced in estimating construction costs of similar building projects
· a quantity surveyor.
Unless they are otherwise qualified, valuers, real estate agents, accountants and solicitors generally have neither the relevant qualifications nor the experience to make such an estimate.
In your case, you own a rental property in Country X, and intend to obtain a depreciation schedule for the property. A registered quantity surveyor is not available in Country X.
You have employed an Australian firm of registered quantity surveyors to prepare a depreciation schedule for a property you own in Australia, and you want them to prepare a schedule for your property in Country X.
As they are registered quantity surveyors, they are appropriately qualified to provide an estimate of the construction expenditure associated with your property for the purposes of claiming a deduction for capital works under section 43-10 of the ITAA 1997.
Deduction for the decline in value of depreciating assets
You can deduct an amount equal to the decline in value for an income year of a depreciating asset that you held for any time during the year.
The deduction for the decline in value of a depreciating asset is calculated using either the prime cost or diminishing value method. Both methods are based on the effective life of the asset.
For most depreciating assets, you can either make your own estimate of the effective life or adopt the effective life determined by the Commissioner.
In relation to the purchase and valuation of second-hand assets, generally independent valuations that establish reasonable values for depreciating assets satisfy Tax Office requirements.
In the absence of an independent valuation, taxpayers may need to demonstrate that their estimate is a reasonable value. Considerations would include the market value of the asset compared to the total purchase price of the property.
Therefore, in determining the deduction for the decline in value of a depreciating asset, you have the option to determine the valuation of the second-hand assets yourself or obtain an independent valuation.
In your case, you own a rental property in Country X, and intend to obtain a depreciation schedule for the property.
A registered quantity surveyor is not available in Country X. You have employed an Australian firm of registered quantity surveyors to prepare a depreciation schedule for a property you own in Australia, and you want them to prepare a schedule for your property in Country X.
As they are registered quantity surveyors, they are able to provide independent valuations for depreciating assets associated with your property in Country X for the purposes claiming a deduction for decline in value under section 40-25 of the ITAA 1997.