Some of you might have read this on a property forum, in which case you will recognise I have a different user name there - no reason really, just that Prospector didnt sound right on a property forum!
This isnt about shares, but given my recent discussions with people like Julia et al about accountants, I thought I would share it here.
We have held an Investment property since 1996, which has always been rented out. It is (was) in Noosa and was a serviced holiday apartment thingy, so it also has depreciating assets like bedding etc.
OK, in January 2004 we thought maybe it was time to sell so I contacted my original accountant because we needed to know our CGT liability so I could plan my taxes around it. I gave him a purchase price/possible sale price, less costs scenario and he replied through email say yes, spot on calculation.
It took 18 months to sell, and while waiting for settlement I was able to send him another email with the real figures this time and again he said, spot on calculation.
I knew we were up for a swag of CG money so I took out way more PAYG tax then I thought we would need, because I hate handing over thousands of dollars in one hit. So that was under control, (I actually calculated I would get 5k refund) and then I was also able to salary sacrifice thousands of dollars assumming I had my tax bill under control.
So then another accountant in the same practice, does our (partner and my) company, personal and super tax returns. I got them back Thursday. Our superfund - we have to pay tax because last year it did really well. That's OK. Ditto for the Company.
BUT - his CG calculations had me owing $11,000 additional tax to the ATO! And I was expecting $5k back!
I rang him on the mobile from the Post Office in tears! I dont have $11k just lying around to pay to the ATO, and wait a minute, what about the advice of the other accountant!!!!
He said that I had not factored in a reduced cost base of purchase because of depreciation. WHAT ARE YOU TALKING ABOUT - DEPRECIATION!!! Why wasnt this raised before!
I told him about my previous email pre sale (I had forgotten the one I sent during settlement at the time) and I dont think he believed me, it was after all 2 years ago! But I dont delete any emails..
We pinged off emails backwards and forwards. I contacted the ATO and they didnt think he was right. I was in denial....my first accountant said 'I did say there would be some adjustments' - yeah right, $16,000 NETT adjustments! (The $11,000 owing and the $5K presumed refund). Then I found the second email I sent which was very specific and in my favour!
Then I posted on this Property forum! Like Aussie Stock Forums, I received Bucket loads of assistance and support. And guess what!
The accountant has calculated my building write off depreciation incorrectly. Our property was purchased before 13th May 1997 which was when the new rules came into force! So they do not apply! This was on Saturday I found this out, so am waiting for his response today.
This error alone, reduces our tax bill by $8,000 NETT!
The issues I am presenting in a meeting on Wednesday:
1. Incorrect advice both pre and during settlement sale may have influenced our decision to sell, and/or reduce the price
2. Had we been advised correctly we would not have salary sacrificed but put that money towards the tax bill
3. How did the second accountant also make such a signficant error in depreciation!
Last year when I queried the size of their accounting bill, I said to them that I reconciled all the accounts, finished them off in MYOB etc etc - I did all the work for them! They said, yes, but "we ensure that it is all professionally presented and accurate!" Do you reckon that statement is going to come back and bite them on the, well, wherever hurts the most!
I have not slept much in four nights, I am stressed, not eating, am running on adrenaline. And I am so angry...