Depreciation claimed and selling IP

Hi all

I have claimed depreciation on my IP since purchase and I thought I remember reading that when selling an IP that you have claimed depreciation on, the amount claimed for depreciation needs to be paid back at sale time??

Did I make this up? Clarification please!

About to see my accountant as we start the selling process, I just thought I would see what comments the brainstrust came back with

Cheers,
 
This topic comes up a fair bit on here.
My accountant will be doing the CGT calcs for a property I am selling.
He will deduct from the cost base any depreciation I have claimed on the building only.
 
Thanks depreciator

I thought it would have; a search on depreciation through the forums didn't come up with anything (wrong search word... :eek:)...

You talk about depreciation on the building only. I'm assuming this is for a house?? Anything different for a unit?

Cheers,
 
Mine is a unit, not a house. When I say 'building, I mean the Assets: appliances, carpet, curtains etc, don't come into it.
As I said, that's just how my accountant handles it.
 
This calc is done incorrectly by accountants many times.

Division 43 capital allowances claimed will increase the capital gain.

Division 40 I.e. depreciation allowances arent deducted BUT they have a similar effect. Why ?

Your sale price and purchase price MUST be apportioned between plant &equipment and land and buildings. The plant and equipment is excluded from the cgt calc as this is a balancing adjustment event.

The end result an increase in the capital gain. This is done wrong many many times.
 
This calc is done incorrectly by accountants many times.

Division 43 capital allowances claimed will increase the capital gain.

Division 40 I.e. depreciation allowances arent deducted BUT they have a similar effect. Why ?

Your sale price and purchase price MUST be apportioned between plant &equipment and land and buildings. The plant and equipment is excluded from the cgt calc as this is a balancing adjustment event.

The end result an increase in the capital gain. This is done wrong many many times.

It sounds like the net outcome of this is that all depreciation is effectively deducted off the cost base - i.e. you pay it back at sale time (less the 50% discount, and not counting the time value of money, so it is still in your interests to claim of course).

Is it really that surprising it is done wrong so often? Firstly, it is ridiculously complicated for somethign that should be very simple - depreciation is not a difficult concept.

Secondly, who apportions the plant and equipment in the O&A paperwork?? Are you seriously going to say 'I'm offering $400K, of which $365 is for the buidling, $3,500 is for the curtains, $4,700 is for the carpets...."
 
Secondly, who apportions the plant and equipment in the O&A paperwork?? Are you seriously going to say 'I'm offering $400K, of which $365 is for the buidling, $3,500 is for the curtains, $4,700 is for the carpets...."

The QS report will show the cost of each depreciable item.
 
What if you are selling the property after claiming depreciation for 5 years and the property is CGT exempt due to PPOR status?

This is all about how to calculate capital gains. If it's CGT exempt after 5 years as an IP (such as under the 6 year rule), then there is no capital gains. Depreciation addback isn't applicable.
 
But does that mean you need a QS report to be able to claim depreciation?

A QS report is simply a surveyor doing it for you. You could put it together yourself using the ATO resources, but then you'll need to be able to value everything.

Given the benefits, there's no real reason why you wouldn't get a QS report.
 
I believe the 6 year rule wont apply in his case as you must have used the place as a PPOR from date of purchase before it became an IP, not the other way around as the OP has done.

CGT in this case will be on a pro rated basis based as % of the time it was an IP over total ownership usinmg the reduced cost base as the starting point.
 
The end result of the add-back for depreciation / CA is that it does increase the capital gain by $1 for each dollar claimed in many cases. However, if the property is subject to the 50% CGT discount you will always be better off by:
- 50% of the amount (due to the CGT discount) plus
- Bringing fwd tax deductions into each tax year

QS reports are very good at bringing deductions fwd and this can have a catch. This occurs if the IP is destroyed by fire and it is insured. The carrying value of the building in a QS report will be very low (ie the balance to write off) v's its insured value (replacement cost ?). Unless you rebuild VERY quickly (within 12 months) and choose to rollover the profit to the replacement asset you can be left 30% or more out of pocket. That rollover can leave very low deductions for future years and a deferred CGT issue.

I would recommend discussing higher insured value with a broker that assists to immediately rebuild without concern for site and other such costs.
 
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