Might Still be Worth Getting a Depreciation Schedule

Discussion in 'Accounting & Tax' started by Mike A, 29th Feb, 2020.

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  1. Mike A

    Mike A Accountant Business Member

    24th Jun, 2015
    Recently we discussed the value of a depreciation schedule. However even if the property mainly has plant & equipment (and not much capital works deduction) then it still might be worth it.

    Why is that ?

    Bob has purchased a residential investment property in sunny Brisbane. He buys the property for $500k for the house and land.

    He decides to get a depreciation schedule and the "second hand" plant & equipment that he purchased as part of the property comes to $30k.

    Unfortunately Bob finds out the rules changed and he can no longer claim depreciation on those items. "what a bummer" says Bob.

    But Bob there is a benefit. But it comes later on.

    Bob sells the property 15 years later and by that time the value of all those assets are zero.

    When Bob sells what occurs is an CGT event called K7 to those items. So Bob ends up with a capital loss of $30k on the plant & equipment.

    A capital loss that could offset capital gains.

    So Bob was glad he did get that schedule after all. All was not lost.

    #property #realestate #tax
    Redwing and ellejay like this.
  2. craigc

    craigc Well-Known Member

    25th Jun, 2016
    Hi Mike, doesn’t this work out as nil sum game?
    I think these calcs have been done before.
    Purchase becomes $470k + $30k P&E. (From $500k example above).
    Sale for say $800k later.

    Gain with example above becomes $330k on ‘house’ less $30k loss on P&E.
    Net result $300k gain which is the same as $800k sale price - $500k purchase price.
    BMT Tax Depreciation likes this.
  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

    18th Jun, 2015
    1. The depreciation / CA deductions may reflect as higher refunds each year
    2. The offsetting higher CGT gain is given a 50% discount.
    3. Bob may be able to bring forward some of the CGT loss. eg His QS report shows Div 40 tax benefits deferred for kitchen appliances of $2000. He still owns the property but has put a new kitchen in. The scrapped assets can be recognised as a CGT loss now and he doesnt need to sell. And he may offset his ANZ share profits in the same year

    Rule #1 is to obtain a QS report for every investment property unless the QS tells you its not worth getting.
    BMT Tax Depreciation and Mike A like this.