Depreciation Question - New Kitchens

If I am putting in a new kitchen, how much can i depreciate on it (excluding cooktop / oven / rangehood / dishwasher).

Effectively - Cabinets, doors, drawers, handles, cutlery tray, kickboard, stone benchtop.

How much depreciation can i claim?

 

Depreciation on kitchen renovation (excluding appliances) is 2.5% per year for 40 years.
If it is an existing rental property then you should also look at claiming a deduction for the residual value of the existing kitchen.

 

How much have you spent?

The answers to both questions will be similar.

As RedlineQS says, you'd take your total capital works expenditure and divide it by 40 for your yearly claim.

 

Thanks guys.
@RedlineQS and @BMT Tax Depreciation
To help me understand this a little better, I'm going to use an exaggerated example.

I purchase a property (circa 1980)
I rip out the kitchen
I put in a new kitchen.
I decide to sell the property to a related party (eg family member) - purchased at arms length transaction.

The new owner (related family member) purchases it as an investment. They decide they dont like the cooktop / oven / rangehood. Decides to rip it out and put in new stuff.

Because the kitchen (excluding appliances) is classed as capital works, the new owner is able to claim the kitchen cabinets etc.

As for appliances, because the new owner purchased these and has receipt for these, they are also allowed to claim these items (as they can provide a receipt which shows them as the owner).

Is my understanding correct?

 

Correct

 

Thanks @RedlineQS

 

No. Scrapping isnt available to the new owner in the example given. Its important that the owner claiming scrapping has a nexus before AND after scrapping to production of rental income.

If YOU kept the property and ripped the kitchen out and re-let the property then YES the scrap value of the kichen may be written off.. However you may find the QS report would not separately list it. A pre-demo evaluation of its remaining value would be need.

The new owner can commence depreciation deductions based on their actual cost for their new kitchen and the new applicances (and any remaining value in the building they bought iof it was built / reno after 1986)

Beware that the proposed new rules about depreciation will end scrapping for plant items when a new owner acquires a property. The scrapping becomes non-deductible for all expect the building itself

 

@Paul@PFI
Scrapping ? I didn't mention anything about scrapping.

That said, I am trying to distinguish between Capital Works vs Plant and Equipment Assets.
If the new owner found the kitchen to be suitable for their needs, and decided to rip out the Cooktop/Oven/Rangehood only (which I assume is classed as Plant and Equipment Assets), they wouldn't be able to claim for scrapping as under the new rules, they can't depreciate it.

But the kitchen cabinets themselves are classed as Capital Works, therefore even if they were installed by the previously owner can have a value assigned to them by a QS and depreciated @ 2.5% per year over 40 years.

 

What will they do with the appliances removed?

 

As this is a hypothetical scenario, I'd say they are going in the bin or resold on gumtree in exchange for chicken McNuggets. Because the items are subpar cheapy bunnings appliances which are prone to breakage and the cost of replacing now is cheaper than constantly sending an electrician out - add on the ability to depreciate as well.

 

If resold the money received would be income.

 

As previously indicated few QS reports would identify the Div 43 asset for the kitchen cabinets as a identifiable asset.

Other issues can affect this.. eg are the appliances in a pool ?

Specific QS advice based on your report / issues would be required. For example a different benefit could even arise. eg deferred depreciation CGT benefit ?

 

If resold for anything of value even under barter the value received could be a recoupment of possible deductions.

 

There's a good reason for this: where do we stop? Capital works encompass just about everything that's not plant & equipment, so the breakdown would be quite intricate and turn the depreciation schedule into something the size of a phone book (remember those?). Tiles? Grout? Handles? Splashbacks? Taps? Pipes? Nails and screws? The list would go on ... and on ... and on.

 

If a specific issue arises the QS may be able to identify and seperately report the issue - IF there is a benefit or reason.