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depreciation claim and CGT cost base

Discussion in 'Accounting & Tax' started by newbie property, 18th Nov, 2015.

  1. newbie property

    newbie property Active Member

    Joined:
    4th Nov, 2015
    Posts:
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    Location:
    parramatta
    I'm having this silly question here:

    Say if I purchased a hot water system for $1500 for my rental property, then claim it as an asset expense (not rental expenses) and claim the cost as a depreciation over the years (ie 1st yr: $200..2nd yr $100..etc according to its effective life and diminishing depreciation in theory)..
    then when I'm selling this property and calculating CGT cost base...does the $1500 treated as a capital cost?

    Or does it mean once you've claimed the depreciation of an item , that's it, its cost ($1500 in this case) cannot be added as the cost base of CGT?

    Thank you very much!
     
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
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    Location:
    Sydney
    Example - Sale of property after 2 years.

    HWS Depn Y1 $250 (assuming acquired 1 July) [Rate is 16.66% based on DVM and effective life of 12yr]
    HWS Depn Y2 $208
    WDV at 30 June Y2 is $1500 - $458 = $1042

    The proceeds from the sale must be reduced by the $1042 in calculating a capital gain / loss. You cant make a capital gain or loss on depreciable assets.
     
  3. Rob G

    Rob G Well-Known Member

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    16th Oct, 2015
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    Location:
    Melbourne
    Nope.

    A depreciating asset under the capital allowances system is a separate asset from your IP. It does not affect the cost base of your IP for CGT purposes, s.108-60 ITAA97.

    You will have a balancing adjustment for the gain or loss on disposal when the HWS is sold (along with the IP) or scrapped.
     
  4. newbie property

    newbie property Active Member

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    4th Nov, 2015
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    Location:
    parramatta
    Thank you, Paul! clear explanation!
     
  5. newbie property

    newbie property Active Member

    Joined:
    4th Nov, 2015
    Posts:
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    Location:
    parramatta
    Thank you, Rob for the good advice!