You're Missing Out If You Haven't Had a Chattels Valuation Done!

You're missing out if you haven't had a chattels valuation done!

Did you know that you can still depreciate carpet, curtains, stoves, heat pumps, dishwashers and other chattels?  From 1/04/11 there is no building depreciation, so depreciating chattels has become even more important.  For commercial property owners there are even more deductions available!
 
I've looked back at a few clients who had chattels valuations done by Valuit a few years ago:

• Client 1:  Owned three properties for a number of years.  $79,001 total chattels depreciation claimed = approximately $26,000 tax saved.  Cost around $400 *3, so $1,200 total cost to save $26,000.  2167% return on investment.
• Client 2: Owned one property for a number of years and recently sold.
  • $30,969 chattels depreciation claimed, saving $10,219.77 in tax.
  • Equivalent building depreciation would have been approximately $7,000, but this would have been recovered on sale, where as the chattels have actually reduced in value, so no recovery.
• Client 3: Very simple commercial building fit out.  $52,102 chattels depreciation claimed = approximately $17,000 tax saved.

Over the last few years I've noticed a lot of property investors haven't had these done and have missed out on thousands in tax refunds.  For new purchases, you need to get a valuation done before the first tax return is filed and ideally at the start.  If you have already filed, it gets a bit trickier:

• IRD don't like investors changing from just building to chattels split out but that doesn't mean they are right. 
• If it has just been one year, maybe two, then it is possible to get a valuation that reflects the purchase values, then to calculate the opening book values and start depreciating.  You will have some 'black hole' depreciation but at least you get some going forward.
• Over two years, you can swear and curse at your old advisers but that's about it.

Cost vs Benefit
 
Valuit charge $400 + disbursements +GST to complete a chattels valuation for a Single Tenancy Dwelling.

The benefit of the valuation depends a lot on the property you own.  If it is a brand new property, then there will be a large amount of chattels and it will make sense to get a valuation completed. 

But if the property is old, run down and only with a small number of low value chattels, then it probably won’t be worth getting a valuation done. 

In the middle is the grey area, where it really depends on the specific property.  If you are unsure, we suggest you either give me a ring, view Valuit’s website or talk to Valuit.

For example $10,000 of carpet:

• If there is no chattels valuation (or separate cost), then it is included in building with no depreciation.
• If there is a chattels valuation, then it is depreciable at 25% which is $2,500 per year.  In the first year this would give a $750 tax saving if the owner is on the 30% tax rate.  This would easily pay for itself in the first year!

Terry le Grove is the Waikato representative for Valuit.  He will let you know, at no cost to you, if it is not worthwhile doing a valuation.  So it is worth discussing this with him.  His contact details are:

Terry le Grove, Property Depreciation Specialist
Valuit
Freephone 0508 482 583
Mobile 027 296 0827
Email: terry@valuit.co.nz
Website at www.valuit.co.nz

If you haven't depreciated your chattels,  email  ross.barnett@lifetime.co.nz  to see if there is something we can do for you.

  
Kind regards
Ross Barnett 

Disclaimer: This article has been prepared for the purpose of providing general information, without taking into consideration any particular person's objectives, financial situation or needs. Any opinions contained in it are held by the author as at the report date and are subject to change without notice.