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ppr depreciation voids cgt exemption

Discussion in 'Accounting & Tax' started by Elives, 26th Aug, 2016.

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  1. Elives

    Elives Well-Known Member

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    Hi All,

    i just got off the phone with a friend who has a ppr and is about to rent it out and i recommended that he gets a depreciation schedule, He said that if he gets a depreciation schedule on the property and claims depreciation that when he goes to sell in 4-5 years it would void his cgt exemption. this does not sound right at all. is this correct? i can understand having to take off the bit you have claimed.

    Cheers, Elives
     
  2. Ed Barton

    Ed Barton Well-Known Member

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    not correct
     
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  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Is he a tax agent or lawyer?

    Ask her for the legislation to support that view.
     
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  4. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Ummm nah!!!
     
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  5. Elives

    Elives Well-Known Member

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    he said and i quote "my dads accountant said.." and btw his dad is a financial planner same dad that told him to get a building n pest done by one of his friends who didn't give him a written report (cashie) my friend then later found out there was a leaking roof + termites / termite damage. i knew he was incorrect
     
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  6. Beelzebub

    Beelzebub Well-Known Member

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    Maybe he's confused. My understanding was that depreciation lowers the cost base of the asset. Therefore the capital gains made are larger in the eyes of the ATO, meaning that more CGT will be payable. Maybe hes taken that to mean you don't get any CGT discount?

    My understanding: You purchase for $100k the asset depreciates $10k The ATO calculates the Capital Gains on the property at a starting value of $90k not $100k. (Maybe an accountant can confirm or correct my understanding)? Your still better off depreciating.
     
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  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Depreciation is added back to the cost base if you could of claimed it
     
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  8. Rob G

    Rob G Well-Known Member

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    Capital works deductions are subtracted from the cost base for CGT.

    However, if the friend is only renting up to 6 years while absent and not claiming any other dwelling as their exempt main residence then any capital gain will still be wholly exempt.
     
  9. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    only division 43 capital works affect the cost base of the asset.

    Division 40 capital allowances do not affect the cost base as those items need to be removed from the purchase price and sales proceeds and are subject to a balancing adjustment.
     
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