Zeeshan Hamid wrote:
Martin Capper wrote:
Accounting standards applicable to the private sector dictate that assets be depreciated over their useful life - in this case it would be 2.5%.
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It is always prudent in making any business decision to consider the incremental or marginal impact of a project which is why I suggest that a 2.5% rate is applicable.
KGC wrote:
Can any Councillor verify that the 1.5% rate makes more sense than Martin's 2.5% rate? (I assume the building has some residual value after 40 years so that could reasonably explain the 1.5% rate).
Sorry for the late response, I was waiting to hear back from some of my accountant friends who work in the finance department of some well known large corporations.
Depreciation for accounting (tax) purposes does not necessarily represent your real cost of maintaining the building. Companies depreciate their commercial buildings over 40 years for tax purposes to get a tax writeoff, they don't actually take 2.5% of the value of their buildings and put them in an escrow.
For instance, the only rental investor I know depreciates his 'class 3' residential unit at 5% / year (tax writeoff). Nobody actually thinks his rental will be worth $0 in 20 years or that he'd have to spend the entire value of the rental in renewing it over 20 years.
Zeeshan Hamid
Zeeshan
In the second half of last year at Council I recall the Town Treasurer stating that Province would be requiring Municipalities to depreciate their assets. I specifically recall Brian Penman asking the Treasurer as to the implications of this on the Town's ability to borrow but do not recall the time frame that it was to be implemented. Further the 1.5% reserve was based on the Town's total assets I would assume that it is higher for Buildings, especially purpose built Buildings, than it is for Roads and bridges however a simple question to the Town Treasurer would give you the info you seek. With all due respect to your accounting friend depreciation is not just a "tax" write off perhaps best demonstrated by the fact that frequently tax and book depreciation differ giving rise to deferred tax liabilities or in rare cases assets.
The following is a quote from a 2010 report to Council "Although
amortization expenses should not be used to determine the impairment of an asset, it is
used to attribute the capital cost over the life of the asset and is a good tool to predict
the future annual financial commitment required for asset rehabilitation. As such,
consideration of a dedicated capital levy in future years budgets may be needed to
ensure that the Town’s tangible capital assets are being replaced/rehabilitated in a
timely manner without large fluctuations in the tax rate or the issuance of debt in excess
of the approved council policy. "
At the time this report was put forward Depreciation was to be required to be shown starting in 2011. I have no further information than that!
KGC
The Capital in the Legacy Fund will be $70 million. Of this 75% will be allocated to 3 projects of which one is the Velodrome. Only the interest earned on this Capital is available to the 3 projects. Sierra assumed that one third of this interest would apply to the velodrome. Do the math yourself and calculate how much this works out on an anual basis. Then compare that to the annual deficit reflected in the business plan. That will tell you how much, if any, is left over to deal with any depreciation on the non Town portion of the aaset cost!
Once again please understand I am only pointing this out to ensure that the Business Plan is as accurate as you believe it to be. Yes you are right these are my opinions and as they will likely be ignored any way there is little point in you and I continuing the debate enjoyable as it has been.
Martin