A word of warning on these 'scrapping schedules'.

These are getting talked about more and more.

The term 'scrapping schedule' is not an ATO term. It's been made up by a QS - not a bad name, I have to admit.

The typical scenario is:

You buy an IP and do a reno straightaway. You toss out the carpet, curtains/blinds, stove etc and claim the value of them as an instant deduction.

I have always told people that it is prudent to rent the place out and earn some income from the Assets for a while before trying that one on.

I've spoken to the ATO about this a few times and they have always been a bit non commital. So I got a Private Ruling.

Now a Private Ruling only applies to one particular situation. But it demonstrates clearly the line the ATO takes with this. The guy who worked on my Private Ruling would have looked for all relevant rulings (Private and Public) as his starting point. And now my Ruling is there.

I made the scenario in my Private Ruling fairly broad.

The ATO confirmed what I thought. And they took an interest in the notion of these 'scrapping schedules' being marketed to investors.

Scott
 
Would it make a difference if I just kept the old carpet/sinks/whatever under my house steadily depreciating them for a while rather than throwing them out?
:confused:
 
Would it make a difference if I just kept the old carpet/sinks/whatever under my house steadily depreciating them for a while rather than throwing them out?
:confused:

HA HA ...

You are deemed to have received market value for items that you continue to own but no longer intend to use for a taxable purpose.

Keeping old carpets under the house so you can buy and depreciate new ones does not sound like a taxable purpose to me.

Also claiming depreciation on the carpet under the house sounds dubious.

Sometimes you may avoid a balancing charge and still claim for plant that is left installed and ready for use for backup purposes.

I don't see how storing carpet under the house is "installed ready for use".

Cheers,

Rob
 
I perhaps should have clarified- stored so I can use it again if need be on another property (or the same property even!).
 
Think of depreciation as compensation for wear and tear by tenants.

If the tenants can't use something because it's under the house or locked away, there is no compensation.

It's best for a few reasons to get tenants into a place and collect some rent for a while before doing anything to it.

Talk to your accountant about the timing of these things - and hope he's as good as Rob.
 
Hi Julia,
They don't post them for a month, so right now it only has a case number. Send me an email and I'll forward it to you.
Scott
 
Scott,

You mention typical scenario being the reno carried out almost immediately after acquisition of the IP.

My understanding of a legitimate approach I am using is an IP purchased in 2006, tenanted since, now DA in place for three townhouses and awaiting demolition of existing dwelling.....I will be submitting a 'scrapping' schedule as part of this process and have had no negative feedback from my accountant in our planning discussions.

I'll stay tuned for any update on proceedings if you would be kind enough to post once PBR formalised.

Regards,

Ian.
 
If the place has been rented out, there is no problem. We had a client years ago who got a Ruling on that same scenario i.e. they bought a place, rented it out for a while, then bowled it over and 'scrapped' it.
Scott
 
You buy an IP and do a reno straightaway. You toss out the carpet, curtains/blinds, stove etc and claim the value of them as an instant deduction.

So what value do you attribute to the deduction? If they are scrapped wouldnt they be worthless?

Also does the new carpet/blinds/stove etc be classified as a repair or a imrpovement? Thanks
 
Can I please get the PBR number as well I am looking at doing something similar with one of my properties claiming this scrapping thing or whatever it is.
 
How about - bought place in 2006, rented out since.

Going to do reno and then have place as PPOR for a bit.

Are we able to "scrap" the old bathroom, kitchen, carpets etc prior to reno?
 
I'd say so. But your accountant will advise. Don't move into the place before doing the reno.

Of course, if the bathroom and kitchen are pre 87 they're not worth anything if you toss them out.

And if you've been depreciating the carpets there won't be much left in them either.
 
Initially acquiring a depreciating assets and had the property been rented then get a deduction under Div 40 and Div 43. Prior to getting a deduction under both of those divisions. Division 40 section 40-25 can deduct an amount have for any time . subsection 2 must reduce the value. Taxable purpose is defined as producing assessable income.

Division 43 section 43-40 and section 43-140 states that you can get a deduction for capital works but one of the requirements is that you were using the area for producing assessable income immediately before the destruction. Refer to http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s43.140.html Column 3.

Issue is have we used the construction area for producing assessable income for capital works and for depreciating assets the issue is whether those assets have been used for producing assessable income. The dilemma is at the time it hasn't been used for producing assessable income.

Question then is can we rely on Steele?s case for a deduction. Looks at section 8-1 which requires a different analysis and issue was contemplated in the Ormiston Case. Holding costs for a period available rent. Looked at deductibility of holding costs and taxpayer was successful for holding costs but that was interest, council rates, etc. They determined in that case there were non holding costs including depreciation. The decision made it clear that non holding costs incurred before being available rent cannot be deducted until being made available for rent because the property isn?t being held for rental purposes at the time. Wonder if people who use Steele's to support every deduction have actually read Steele's case ?

Therefore a scrapping schedule will not help as you wont be able to claim a deduction for these scrapped assets prior to the property being available for rent. Alternative is to purchase the property and rent it out for at least 12 to 18 months the longer the better and in which case you could argue that the scrapping was done in accordance with the above rules.
 
Property developers will find that the ATO consider that the scrapped asset is merely a decreasing adjustment to the cost base and this transitions to a lower trading stock item. I recall one where they threw the date of the DA application at the taxpayer. Their approach wasnt unlike the initial repairs argument. ATO disallowed claim and left it to taxpayer to fight.

I wouldnt touch a write-off deduction without a ruling. A knock-down + rebuild with IP use on either side slightly different. The taxpayer can choose the write off or rollover replacement method.

Then this can work in reverse too...Client IP was lost in a fire. Remaining value on BMT schedule was $40K. Insurer paid out $140K....
 
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