Hi Sorry ignorant question / ignorant of the answer here When claiming depreciation on an IP say 2.5% over 20 years - ie 50% of build costs If build costs were $200k - thats $100k of depreciation claims ..... OK So when selling the property - one has to deduct those claim from your cost base. Here's my question - are you deducting the $100k from your cost base or is it I assume / hope ..... against your taxable income during those periods - so more likely .... 37% ie: $37k off your cost base.....
its from the cost base. not just the Division 43 capital works that needs to be adjusted either. So does any Division 40
The effect of this process is that you will claim the $100K over the 20 years. Then the addback will increase the total capital gain by the $100K. Then half of that increase in cap gain is an additional taxable amount (assuming no CGT losses). You will remain 50% better off having claimed the Div 43
Especially if laws later change. A good example of this is choosing Prime Cost (PC) v's Diminishing Value for Div 40 assets. I believe you claim what you can today and maximise it because it may not be available later PC will delay some deductions v's using dim value but over time ie 12 years the deductions will be identical for a continuous IP. If the laws then change before the typical 12 years has expired like we saw in 2017 then you are stuck with a worse position unable to claim available deductions. I'm of the belief that the only times you dont want a QS report are when : 1. Your use of the property for income is very brief 2. The QS tells you its not worth doing Before the 2017 law changes a strategy of using PC did defer deductions for a home that would later become a IP BUT....Now the deduction is $0 so that means diminishing value should generally be used except with tax advice to the contrary.
