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Kuberan AI Help

Construction to operating

When a client builds or substantially renovates a property, costs aren’t expensed — they’re capitalised into the building’s cost basis and depreciated over the property’s useful life. Kuberan handles this with a Construction property status that captures WIP, then a single-click Convert to operating action that splits the WIP into Land and Buildings and posts the conversion JE.

The lifecycle

Construction                Operating                    Disposed
     │                          │                            │
     │  [Convert to operating]  │   [Dispose]                │
     ├─────────────────────────>├───────────────────────────>│
  • Construction — no depreciation runs; no rent invoices are generated; costs tagged to the property accumulate in a WIP account.
  • Operating — a FixedAsset exists for the building, depreciation runs monthly, leases can be created, rent invoices are generated.
  • Disposed — disposal JE posted, active leases cascaded to ended.

1 — Create the property in Construction status

  1. Properties → Add property.
  2. Enter name, type, address, and set Status = Construction.
  3. Enter Land cost (non-depreciable) and an optional Expected building cost for planning — these don’t post JEs, they’re metadata.
  4. Save.

2 — Accumulate WIP

Every bill, journal entry, or bank-transaction split that represents a capitalisable construction cost should be tagged to the property. Line account should be the WIP asset account (the COA wizard’s buildings slot is typically used for WIP during construction; some clients prefer a separate construction-in-progress account — either works, as long as it’s an asset account).

Examples of what to tag:

  • Contractor payments (bills)
  • Architect fees, permit fees (bills)
  • Hard costs invoiced by the GC
  • Soft costs — legal, survey, environmental (bills)
  • Interest on a construction loan (manual JE, or mortgage-payment split if the loan is in the Mortgages module)

What NOT to tag:

  • Land-transfer tax on the original purchase (already in Land account).
  • Operating expenses that won’t exist until the building is running (utilities for a vacant site, property management fees, insurance on the finished unit).

Costs that are mis-tagged can be fixed later — edit the source line and change the account to an expense. The conversion to operating pulls from whatever’s in the WIP account on that date.

3 — Convert to operating

When the building is ready for occupancy:

  1. On the Property detail page, click Convert to operating.
  2. Enter the Placed-in-service date — the date the building was ready for use. This is the depreciation start date.
  3. Split the total cost between Land value (non-depreciable; stays on the balance sheet forever) and Building value (depreciable basis). A typical residential split is 20-25% land / 75-80% building, but have the client’s appraiser / tax accountant sign off on the ratio.
  4. Confirm the CCA class and rate. Class 1 @ 4% is the default for residential buildings post-1987. Pre-1988 residential and certain commercial structures use different classes — consult CRA guidance.
  5. Click Convert & post JE.

The server performs three operations atomically:

  1. Creates a FixedAsset record with category real-estate, linked to the property, with the specified CCA class / rate and the building value as cost.
  2. Posts a conversion JE: 
    Dr Buildings        (building value)
    Dr Land             (land value)
    Cr WIP              (total = buildings + land)
    All three lines carry propertyId.
  3. Flips property.status from Construction to Operating.

Rent invoice generation and depreciation are now both live. Units and leases can be added; the Property P&L starts reporting from this date forward.

4 — Post-conversion improvements

Improvements after the conversion date are a new FixedAsset, not an addition to the original building basis. This keeps each improvement on its own CCA class-13 schedule and avoids muddying the original building’s depreciation.

  1. Go to Fixed assets → Add asset.
  2. Category: real-estate-improvement. CCA class 13 is the default.
  3. Link the asset to the property via the Property picker.
  4. Save. The improvement begins depreciating on the next monthly run.

Common pitfalls

Forgetting to mark the property Construction at creation: if the property is created as Operating but the building isn’t done yet, there’s no WIP account to accumulate costs against and depreciation starts too early. Fix: edit the property status back to Construction, reverse any premature depreciation JE, and re-tag the capitalised costs.

Treating the land as depreciable: Land is not a depreciable asset under Canadian tax rules. The Convert action keeps Land in a separate non-depreciable account — if you see Land depreciating, the wrong account was mapped during the COA wizard.

Splitting land/building after the fact: the split can be edited later by reversing the conversion JE and re-running the convert action. This is a last resort — get the split right at conversion, ideally with an appraisal to defend the ratio on audit.