There has been a few discussions on this but mainly for specific circumstances. We usually get caught into what is repair vs capital in the discussions, but not talk as much regarding the deduction for old asset being removed.
Building depreciation is covered under Division 43 of the tax act. s43-40 allows deduction for destruction of capital works (either voluntarily or involuntarily).
Where the new spend is not a repair, eg. replacing a fence, whilst the new spend will be deductible over its life, the item being removed should be available for immediate deduction if the building is used for producing assessable income.
Eg. quantity surveyor tells you the old fence was $5k worth of future deduction, and you replace it now by spending $8k to upgrade, how will this be treated?
My take is that the $8k new fence spend will be capital works and no immediate deduction is available for that. It will be depreciated.
The old fence will be immediately deductible under s43-40, ie immediate $5k write-off (unless you claimed a portion of it as normal depreciation in a past income year).
So on a net basis, I am only carrying forward $3k worth of deductions, making my repair vs capital argument less important.
If there is an insurance claim for involuntary destruction, that is a separate matter.
But where we do renovations/upgrades, etc - s43-40 should be considered.
Does anyone have any concerns regarding this?
Building depreciation is covered under Division 43 of the tax act. s43-40 allows deduction for destruction of capital works (either voluntarily or involuntarily).
Where the new spend is not a repair, eg. replacing a fence, whilst the new spend will be deductible over its life, the item being removed should be available for immediate deduction if the building is used for producing assessable income.
Eg. quantity surveyor tells you the old fence was $5k worth of future deduction, and you replace it now by spending $8k to upgrade, how will this be treated?
My take is that the $8k new fence spend will be capital works and no immediate deduction is available for that. It will be depreciated.
The old fence will be immediately deductible under s43-40, ie immediate $5k write-off (unless you claimed a portion of it as normal depreciation in a past income year).
So on a net basis, I am only carrying forward $3k worth of deductions, making my repair vs capital argument less important.
If there is an insurance claim for involuntary destruction, that is a separate matter.
But where we do renovations/upgrades, etc - s43-40 should be considered.
Does anyone have any concerns regarding this?