BUILDING A HOUSE

QUESTION

How does your service differ if we build a new house?

ANSWER

There are two ways that a house is normally built.

The first is paying a building contractor a contract price to build the house on a piece of land. In this situation Valuit apportions the contract price into the various asset categories. Any items that you have purchased over and above the contract price must be recorded separately by your accountant. These items are claimed based on your receipted costs. Valuit must be made aware of any items over and above the contract price.

The second situation is where you build the house and actually manage the project paying individual contractors etc. In this instance your depreciation will be based on each individual invoice and it is a matter of allocating the invoices to the correct depreciation category. This can be done very simply by yourself and your accountant. Where you have paid for labour or items and do not have a receipt you will not be able to include these costs for depreciation.

DEPRECIATION RECOVERY / CLAWBACK TAX

QUESTION

Do I have to pay back the depreciation when I sell the property?

ANSWER

Some of it you may. Depreciation is allowance for assets decreasing in value due to use. For many of the items such as carpets and blinds it is obviously that these items do decrease in value and depreciation can generally be minimised on assets such as these. If there has been a significant increase in the value of your property during your ownership it will be harder to show that some other items such as the Building itself has decreased in value. The reason that most properties increase in value is due to the demand for land and location. Depreciation should be viewed as a bonus and any depreciation repaid can be viewed as an interest free loan. Think of this also, what will $100 buy you today and what will it buy you in 15 years? The time value of money is also an important point to note.

REGISTERED / RATING VALUATIONS

QUESTION

If Valuit is completing a Valuation for Depreciation purposes why does Valuit require a Registered Valuation or Rating Valuation and which one do they need?

ANSWER

The valuation completed by Valuit is completely different to a Registered Valuation or Rating Valuation (Old Government Valuation). Valuit completes an apportionment of your property's purchase price into all of the various assets for depreciation. To enable us to do this we must apply a formula that is set by IRD to determine the split between Land and Improvements (Buildings, carpets etc). This formula uses a Registered Valuation or Rating valuation. We are required by IRD to use the valuation that is most current prior to purchase. We cannot use a valuation completed after purchase. If you did not have a Registered valuation completed we can use the Rating Valuation and if you do not have a copy of this Valuit is able to obtain these records for a nominal fee.

RENOVATIONS OR IMPROVEMENTS

QUESTION

We have done renovations to the property how does this effect the report?

ANSWER

Renovations undertaken to the property prior to our inspection can cause problems. Depreciation is based on what you pay for the property and therefore we are completing our apportionment of the property as at the date of settlement. Consequently we must complete our inspection based on the property as it was prior to any renovations. If it is minor cleaning and painting there is no major issue as long as we are informed. If there has been replacement of assets such as carpets, lights etc than this can cause problems. To enable us to complete the report in this instance we must have proof of what the asset was like. This could be in the form of Photo's, video, or even the removed asset. We must ensure that we exclude theses items as they are in addition to your purchase price. Any cost incurred in completing renovations etc must be provided to your accountant who will incorporate them into your accounts accordingly, this will also ensure that you get the correct write offs for the items you have replaced.

TRANSFERRING ASSETS / ASSOCIATED PARTY RULE

QUESTION

You asked me if I was transferring the property into a new ownership structure and when I said yes you asked me to confirm with my accountant if the report is to be completed based on the Original purchase price or Transfer price. Why?

ANSWER

The Associated Party Rule is very important when you are transferring the property from one entity to another, say Private name into a Company. The Associated Party Rule states that depreciation must be based on the lower of the original purchase price or the transfer price. Generally the lower will be the original purchase price. In some circumstances accountants can apply to IRD to have your depreciation assessed based on the transfer price. This is something you must confirm with your accountant as we do not want to complete a report for you on the wrong basis.