Scrapping & depreciation / write-off on a property flip?

As per the heading above I have a query for the experts regarding a scrapping claim & also depreciation or immediate write-offs on a potential property flip.

I have heard conflicting advice from a couple of the QS companies if this is claimable.

If a property is purchased for a quick cosmetic reno & up for resale say 4-6 weeks after settlement could these claims be made?

I understand any profit would be on my income account and not capital gains for tax purposes and the property would not be available for rent during the short ownership period. (Say 3-4 months from purchase to resale settlement). Does this make it income producing & claimable?

Thanks

 

If you are going to sell it in 4 to 6 weeks it is all tax deductible anyway - if you call it scrapping of a depreciable item or if it is the cost of the trading stock/net profit calc then the net outcome is the same.

 

Each taxpayers issues will vary. A taxpayer owning a asset held on revenue account in a small business may also qualify for the $20k write but it does not reduce taxable profit. As ross indicates the trading stock profit would rise by 20k to offset the deduction. A zero sum game.

Each taxpayer should have a personal project tax plan that covers every aspect. These issues are normal client questions in that process

 

Thanks gents - of course looking at it now it's obvious - couldn't see the forrest for the trees!

 

If you are carrying on a business then the property is most likely trading stock.

Section 40-30 ITAA97 defines a depreciating asset with a specific exclusion for trading stock. So carpets, hot water system, cooker, etc. are not depreciating assets.

Section 43-70 requires building construction costs to be capital expenditure in order to claim building depreciation. So costs of new kitchen cannot be written off at 2.5% pa. See ATO ID 2003/377.

You deduct the cost of stock purchases when incurred, but must value closing stock still on hand at the end of the year. There is some discretion with valuation methods however.

Even if you are not carrying on a business, the assets are most likely on the revenue account (e.g. an isolated profit making scheme) but you might not be able to deduct purchase costs until the property is sold (profits basis accounting) so get specialist advice on your specific circumstances.