The Impact of Rising Construction Costs on Tax Depreciation

Why Expert Guidance is Crucial?

The Current Landscape of Construction Costs

Over the past four years, the construction costs in Australia have experienced a dramatic increase. These costs have more than doubled, driven by a variety of factors including labour costs, material prices, and regulatory burdens. As a Quantity Surveyor with over 20 years of experience across the UK, US, and Australia, a Committee member of the AIQS and a Board Member of the Gold Coast Chamber, I have seen firsthand how these rising costs impact the industry and the importance of navigating these changes with expertise.

Factors Contributing to High Costs

1. Labour Costs

Labour costs, particularly those associated with union-based labour, have significantly impacted overall construction expenses. The recent CFMEU wage deal has increased labour costs by up to 19% in the first year, and union-based labour can add a further 40% to costs. Queensland, in particular, experiences a 10-20% higher labour cost than other states (Australian Financial Review).

2. Material Costs

While material costs were initially a significant driver of construction cost increases, these costs have now peaked. Material prices have dropped, making them less of a contributing factor to the current high construction costs (GlobalData).

3. Regulatory Burdens

Extra regulations imposed by the government also contribute to the high costs. For instance, the National Construction Code (NCC) has introduced stringent energy efficiency and accessibility standards. New homes must now meet a seven-star level of energy efficiency and include features like wider doors and step-free access. These regulations, while beneficial in the long term, add to initial construction costs (ABC Online). Additionally, various states have implemented their own regulatory changes, such as South Australia’s new building and planning amendments aimed at improving safety and compliance but also increasing administrative burdens and costs (Lander & Rogers) (Infrastructure Magazine).

The Role of Quantity Surveyors

With construction costs rising significantly, engaging a Quantity Surveyor with extensive experience is more crucial than ever. Through Koste, we see all the latest project costs, which we use to calculate Tax Depreciation Schedules. Over the past four years, these costs have been rising significantly. This underscores the importance of engaging a Quantity Surveyor who works with large developers and has a full understanding of current market conditions.

Selecting the right company with the right experience can impact how much you claim back in Tax Depreciation deductions, potentially resulting in thousands of dollars of difference. At Koste, our Directors each have over 20 years of experience, and we are regulated members of the Royal Institution of Chartered Surveyors (RICS). Our staff are full members of the Australian Institute of Quantity Surveyors (AIQS), specialising in Taxation as Quantity Surveyors.

Avoiding Costly Mistakes

Failing to engage an experienced Quantity Surveyor can result in significant financial losses. Inaccurate depreciation schedules can lead to overpayment of taxes or, worse, underpayment, which could trigger audits and penalties. A thorough and accurate Tax Depreciation Schedule ensures that you are claiming the maximum allowable deductions, reducing your taxable income and improving cash flow.

Conclusion

The high construction costs in Australia pose a significant challenge to achieving affordable housing. By focusing on engaging experts, leveraging innovative solutions, and supporting labour market reforms, we can work towards a more sustainable and cost-effective construction industry. As a Quantity Surveyor, I am committed to leading this change and finding practical solutions to benefit all Australians.

by : Mark Kilroy