tax depreciation claimed to be returned to ATO

just need to clarify if the money we received from ATO claimed under tax depreciation for investment property need to be returned to ATO at the sales of the property?

 

Hi there, the way I understand it, depreciation claimed needs to be subtracted from the capital base of the asset. So essentially this is repaid through increased capital gains tax assuming you are selling at a profit. I'm a newbie - someone here would be able to offer more clarification.

 

The basics of the rule;
Capital works/building depreciation must be 'added back'
Balancing adjustments required for Div 43/capital allowance items.

Hope that helps
Steve

 

Depreciation and capital allowance deductions affect the costbase which in turn generally means for each $1 of QS deductions you may get 40cents+ back as an enhanced refund. On sale the $1 of depreciation reduces the costbase (in effect) and so a $1 higher capital gain occurs. This is generally discounted by 50cents so the effects are always in the taxpayers benefit.

The higher tax refund is NOT repaid to the ATO ie "the money we received from the ATO"

 

I never understood this correctly. What happens if someone sells the unit at the same price.

For example, if someone buys a unit for $500k and claims $10k yearly depreciation for 5 years and then sells the unit for $500k.

My understanding: Hi
Actual cost base will be $500k + $50k ($10k * 5 years) = $550k

Capital gain = $50k
50 percent rule apply so $25k will be added back to that year taxable salary.

If that person is on a 40% tax bracket, then the person has to shell out $10k (40% of $25k) from his pocket to pay for the taxes.

Is my understanding correct?

Cheers

 

Well, you came to the correct capital gain, but I'm not sure if it was by accident.

You REDUCE the cost base by building depreciation claimed (Div40 capital works)

So cost base =
$500k (purchase price)
- depr claimed (50k)
=$450k

Calc
$500k (sell price) - $450k = Gross capital gain $50k.

Keep in mind, this is an extremely simple scenario just to demonstrate the basics of how to apply.

 

Finally got it. Thanks Mate.