INTRODUCING THE

ROLE OF THE Alistair Seel Partner

QS Squared

QUANTITY SURVEYOR
BACKGROUND: WHAT IS A
QUANTITY SURVEYOR?
A quantity surveyor is an expert in the art of costing a construction
project at all its stages.
Traditionally the Quantity Surveyors role is to define and manage
the cost of a construction project.
Typically a Quantity Surveyor would be engaged by the client to
ensure that : -
a) the project is firstly affordable,
b) once started the project is running on budget and to contract
c) payments are managed and any necessary valuations required by financiers
of the project are met
WHAT IS A QUANTITY
SURVEYOR?
Quantity Surveyors have a specialist skill set combining project,
commercial and construction management.
The quantity surveyor is able to accurately measure (quantify)
building works required or prescribed and apply knowledge of
construction costs to estimate and/or value the cost of works to the
client.
They are essential for life cycle costing, cost planning, procurement
and tendering, contract administration and commercial
management.
They work on behalf of the client to ensure they are receiving value
for money.
BACKGROUND: ROLE OF THE
QUANTITY SURVEYOR
The Quanitity Surveyor carries
out a number of different
functions: -
Cost planning and commercial management Assistance in dispute resolution
throughout the entire life cycle of the project Asset capitalisation
from inception to post-completion
Interim valuations and payment assessment
Value engineering
Depreciation Scheduling
Risk management and calculation Assessing the additional costs of design variations

Procurement advice and assistance during

the tendering procedures Valuations for Insurance
Tender analysis and agreement of the purposes
contract sum
Life cycle costing
Commercial management and contract
administration
ROLE OF THE QUANTITY
SURVEYOR
In fulfilling any of their many roles the Quantity Surveyor
represents the client and is working to ensure that the client is
receiving the best value for their investment into construction
works.
The client benefits from the expert knowledge of construction
commercial management that the QS brings giving the client: -
Greater cost certainty
Support in selecting/negotiating with builders and establishing contracts
Access to value engineering
Foresight of building cost risks and mitigation strategy
Peace of mind that best value is being achieved
QS VIEW OF THE MARKET
2016 National Tender Price Escalation
figures for 2016
Tender price escalation reflect building
costs. In 2016 we can see that costs
in QLD and NSW have increased at a
higher rate than in Victoria

Going forward over the coming years

the outlook in regards building costs
in Victoria is also much more settled
than NSW/QLD.
QS VIEW OF THE MARKET
2017 ONWARDS
Construction costs are forecast to rise 9% per cent in NSW and
Queensland by 2018, this driven by competition for sub-
contractors, rising wages on unionised building sites and the
impact of the weaker Australian dollar on the cost of imported
materials such as steel, facades and lifts.

In Victoria we are expecting this rise to be less dramatic as the high

rise demand for sub-contractors and suppliers falls as the heat
comes out of the high-rise apartment construction market.

What happens at Macro Level is reflected throughout the industry

QS VIEW OF THE MARKET
2017 ONWARDS
Build Cost Escalation Previous
& Forecast

Building costs within Victoria and

WA will remain much more
settled over the medium to long
term in comparison to QLD and
NSW.
QS VIEW OF THE MARKET
2017 ONWARDS
Continuing decline in AUD against the USD will continue to put
pressure on tender prices due to proportion of imported goods from
Asia etc.

Overall within VIC there is no cause for significant alarm with costs
rising at a slower pace than most other states.

NSW and QLD show fairly significant increases are forecast which
places additional pressure on future projects and adds complexity
in forecasting project expenditure.
IN FOCUS: PROPERTY
DEPRECIATION SCHEDULES
Depreciation is a tax deduction available for the decline in value of any asset over
time due to wear and tear. Property depreciation specifically relates to investment or
income generating properties and refers to the deductions available for the decline in
value of a building and its plant and equipment assets over time.

It allows you to claim internal items like ovens and carpets (Plant and Equipment) and
on the construction costs of the building itself, e.g. concrete and brickwork (Building
Allowance).

This is applicable for all income generating properties i.e not just second homes but
commercial premises
These deductions reduce taxable income allowing the owner to pay less tax and
increase the cash flow from the investment property.
IN FOCUS: PROPERTY
DEPRECIATION SCHEDULES
A depreciation schedule is a comprehensive report that outlines the
depreciation deductions claimable by the investment property
owner on the properties building structure and the fixtures and
fittings within it.

A depreciation schedule, prepared by a Quantity Surveyor, is one of

the best ways to maximise the cash return from investment
property each financial year.
IN FOCUS: PROPERTY
DEPRECIATION SCHEDULES
Capital Works Allowance
The capital works allowance is a deduction available for the structural
element of a building including fixed irremovable assets. This is commonly
referred to as the building write-off.
Capital Allowance Deductions (Division 43) are based on the historical cost
of the building, excluding the cost of all plant and non-eligible items.
If a residential investment property was built any time after 18 July 1985,
then the owner is entitled to claim a Building Write-Off Allowance of 2.5% or
4% for 40 or 25 years from the date of construction. The write-off allowance
available on a property is determined by the date of commencement of the
capital improvement works. All income-producing buildings, refurbishments,
extensions and fit-outs which have commenced construction within the
correct dates should qualify for this Division 43 allowance.
IN FOCUS: PROPERTY
DEPRECIATION SCHEDULES
Plant and Equipment Depreciation
The plant and equipment depreciation is a deduction available for assets
that depreciate at a faster rate than the building. Each plant and
equipment item has an effective life set by the ATO and the depreciation
available on that item is calculated accordingly.
Some of the plant and equipment items commonly found within a property
include:

hot water service freestanding spa

ceiling fans blinds
air conditioners
dishwashers
exhaust fans
rangehoods
security systems
Carpet cooktops
smoke alarms
IN FOCUS: PROPERTY
DEPRECIATION SCHEDULES
Older Properties
Current tax legislation states that any property built before 18 July 1985
(residential) or 20 July 1982 (non-residential) cannot claim the capital works
allowance as a deduction
However, If any extensions or renovations were completed after 1985
(residential) or 1982 (non-residential), they will attract the capital works
allowance.
In the case of older properties, a capital allowance and tax depreciation report
covers not only the capital works allowance but depreciation of plant and
equipment as well. This means that all properties that obtain an income by
the way of rent should be eligible to claim a deduction for the plant and
equipment items contained within the property.
IN FOCUS: PROPERTY
DEPRECIATION SCHEDULES
Two Methods of Depreciation
The ATO allows investors to use two alternative methods of
depreciation: -

Diminishing Value Method

Prime Cost Method

The long term intentions of the property investor will determine which
depreciation method will be most suitable for them. An investor must
decide to use only one method; each method effects the long term
cash flow position in a different way.
IN FOCUS: PROPERTY
DEPRECIATION SCHEDULES
Diminishing Value Method
Accelerates depreciation deductions quickly

The deduction is calculated as a percentage of the balance you have

left to deduct. The deductions will be higher in the first five years and
diminish over time. This is because you are claiming a greater
proportion of the assets cost in the earlier years of the effective life.

Generally the more attractive option where the investment in the

property is short-term, as higher returns are provided in the earlier
years.
IN FOCUS: PROPERTY
DEPRECIATION SCHEDULES
Prime Cost Method

Under the Prime Cost method the deduction for each year is
calculated as a percentage of the cost per year.

Giving a more even spread of deductions over a longer period of

time

An accountant can advise the most suitable method depending on

the investors situation and objectives
IN FOCUS: PROPERTY
DEPRECIATION SCHEDULES
Low Value Pooling
Low-value pooling is a way of depreciating plant items which cost less
than $1,000 or have an un-deducted cost of less than $1,000.

Any asset in a rental property which costs less than $1000 can be
included in the low-value pool and written off at an accelerated rate of
18.75% in the first year of ownership and 37.5% each year thereafter.
The following depreciable assets can be allocated to a low value pool.
Low-cost assets
Low-value assets
IN FOCUS: PROPERTY
DEPRECIATION SCHEDULES
Low Value Pooling Continued

Low-cost assets a depreciable asset with an opening value of less than

$1,000 in year of acquisition
Low-value assets a depreciable asset which has a written down value of
less than $1,000

The following cannot be allocated to a low-value pool: -

Assets which have had deductions claimed using the Prime Cost
method
Assets that cost $300 or less (these can be claimed as an immediate
deduction)
IN FOCUS: PROPERTY
DEPRECIATION SCHEDULES
Low Value Pooling Continued
Immediate Write-Off - The assets that fall under $300 can be written off
immediately

Low value pooling is a useful tool where items are part of a set i.e
cumulatively eight sets of curtains or blinds may be worth $4,000 and would
not qualify for the low value pool. However they should still be depreciated
at the higherrate as they qualify as individual assets i.e $4,000 divided by 8
sets equals $500 each and so can be included in the low value pool.

The same rationale can be applied where there are multiple owners.
IN FOCUS: PROPERTY
DEPRECIATION SCHEDULES
To unlock tax deductions claimable on investment and commercial
properties speak to us today.

A depreciation report is relatively inexpensive and the fee paid is

also fully tax deductible.