CHATTELS VALUATIONS CAN INCREASE NETT RETURNS
by Trevor Prendergast
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Trevor PrendergastMarketing, Finance and Administration |
Residential property investors are surprised at the extensive list of components accepted by the IRD as chattels. And equally surprised at depreciation rates such as 33% for carpet, 22% for heated towel rails, smoke alarms, appliances and varying rates between 7.5% and 9.5% for non load bearing walls, plumbing fixtures, electrical reticulation and decks and fences.
Example 1
If an accountant does not use a chattels valuation and adopts the common 4% overall depreciation on a $180,000 house (excluding land), this gives the rental investor $7,200 as a claimable amount. At 39c in the dollar tax rate, this equates to a tax adjustment of $2,808.
Example 2
However, a chattels valuation can increase the claimable amount for a rental investor. A recent chattels valuation of a $180,000 house (excluding land) totalled $63,000. The house at $180,000 less chattels leaves a sum of $117,000 which would depreciate at the standard rate of 4%.
In our chattels valuation of $63,000, we adopted differing rates of depreciation on various components, the total depreciation totalled $7,718. Using the same 39c tax rate, the adjustment is as follows:
| $117,000 x 4% = |
$4,680 x .39 = |
$1,852 |
| |
$7,718 x .39 = |
$3,040 |
| |
Tax adjustment |
$4,682 |
Summary
|
|
| Standard 4% depreciation |
= $2,808 tax adjustment |
| Increased depreciation of chattels and structure |
= $4,862 tax adjustment |
| The difference is |
= $2,052 increased benefit |
Note: Advice on tax principles should be sought from a chartered accountant.
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