Scapping schedule and Demo for Development

[WilliamB]

Hi all,

I have read a few different threads on here and I am not sure if they really relate to my situation.

I am settling on a new 809 dev block on Monday, which has a house on it.

At no time during my ownership will it be rented, however there is absolutely no private component to it, it is purely business/investment.

The house is not new, but I estimate it has had some renos/improvements done to it over the last few years, the largest being a brand new corrugated roof. That cannot have been cheap. There is also a large amount of fresh concrete around the place, as they had a large shed up the back as the garage, and this would not have been cheap to lay either.

I will be demolishing the house and ripping up the concrete not long after settlement, and wonder if it is worth getting a building/depn schedule to allow me to write off the value of the roof, renos and concrete. I expect the tax benefits here would FAR outweigh the few hundred bucks it would cost to have the schedule done.

Can anyone tell me if this is actually legit in this circumstance? From some of the posts I read it appears it needs to have been previously depreciated to write off the value on scrapping.

To me it seems reasonable that I should be able to write down the value of that being demolished but this is a first for me.

Thanks in advance,

 

[depreciator]

It's my understanding, that when it comes to disposing of, and claiming the residual value of Capital Works I.e. building stuff, there is no requirement that the property needs to have been rented out.
So there could be money in that roof and the concrete.

 

[Rob G.]

s.43-40 ITAA97.

Cheers,

Rob

 

[WilliamB]

Thanks Rob,

My take away from reading that section, and looking at the table it referred to is yes it will be allowable as I am using it to produce assessable income, but not from renting, selling.

Would you agree?

 

[Rob G.]

Purchase of a building ancillary to acquiring trading stock (land) or as a revenue asset in a profit making scheme is unlikely to be within the scope of "for the purpose of producing your assessable income" as used in s.43-140 and defined in s.995-1(1).

Division 43 allows deduction of construction costs where the building is used "as a building" in certain ways. Earning assessable income by the very act of buying and selling the building itself does not appear to be the intention of the legislators.

You should consider legal advice or a pbr if you think you have a question of law, i.e. interpretation of the Act.

Cheers,

Rob

 

[WilliamB]

Thanks Rob, given the scrapping deductions would be north of 30k (new roof ~25k apparently and newish 12*7 shed etc) it might be worth renting for 3-6 months.

 

[Paul@PFI]

I 'm with Rob here. The acquisition as trading stock means that actual costs become relevant. You can increase the value of trading stock with enhancements and expenditure but its difficult to reduce especially land. Subdivision divides the stock value and adds extra costs. Writing it down ?? Thats a blatant scheme and merely adds to profit later since every reducn of $1 in "cost" increases taxable profit by $1. ...Isnt that the issue?? You want a deduction - You cant claim it against sale of the and and if you did its zero sum ?? If you decide to keep the property the cost base will also be higher.

Perhaps you think a deduction will benefit you when it wont ?

Arguablely if you rent it then write-off the capital works you have engineered a Part IVA scheme. The balancing adjustment is nothing but a tax benefit.

Purchase of a building ancillary to acquiring trading stock (land) or as a revenue asset in a profit making scheme is unlikely to be within the scope of "for the purpose of producing your assessable income" as used in s.43-140 and defined in s.995-1(1).