Now that we are in the world of hold and manage assets, it’s probably time to stop making do and get engaged!

It is a regular occurrence and easy thing to simply adopt the vendor’s depreciation schedule. Tax law allows a purchaser to apportion values to all depreciating assets they acquire, i.e. air conditioning, lifts, carpet, chattels, etc. to reflect the cost of the asset as acquired by the purchaser. In a rising market this may even represent a value that is more than its original replacement cost.

On a recent assessment of a property that was acquired by a client for around $15million, the apportioned value of depreciable plant was a staggering $4million more than the vendor’s written down value. The tax sheltered amount increased $3million in the first 10 years of ownership. Assuming a tax rate of 30%, the increased cash value in the first year alone was $220,000 with the ten year tax deferral being $1.8million. Continue reading →