Scrapping after fire - depreciation

Discussion in 'Accounting and Tax' started by propertyVIC, 2nd Jan, 2013.

  1. propertyVIC

    propertyVIC PropertyVIC

    Joined:
    28th Aug, 2009
    Messages:
    195
    Location:
    Perth, WA
    Okay, so our newly-extended IP has just suffered significant fire damage. Everything was brand new and the place had only been tenanted a week or so! Luckily we have both LL and building insurnance.

    Would I be correct in assuming that it would be worth getting a depreciation person in to measure damage and that we could get a hefty scrapping allowance for this?

    Also, once everyhing is fixed/replaced, do we need a new depreciation schedule or can we go on the one we already had done... as only lived in for a week and everything will be replaced the same?
     
  2. womble66

    womble66 L plates firmly afixed

    Joined:
    17th Apr, 2010
    Messages:
    484
    Location:
    Illawarra NSW
    Not sure if it can be depreciated (total write-off due to disposal) if insurance is going to replace new for old????
     
  3. coastymike

    coastymike Member

    Joined:
    24th Jan, 2005
    Messages:
    2,032
    Location:
    mel and syd
    Insurance proceeds will be assessable income
     
  4. GaryT

    GaryT Member

    Joined:
    3rd Sep, 2012
    Messages:
    183
    Location:
    Maroochydore Qld
    This is a complicated area and I suggest you get professional advice from someone familiar with these circumstances but basically:

    A CGT event for the house component is triggered when the payment is received from the insurer. The CG may be able to be deferred.

    If you have been claiming a capital works deduction, you can claim a deduction for the remaining amount of construction expenditure that has not yet been deducted, less any compensation you receive.

    Assuming the insurance payment includes an amount for depreciable assets, then you will make a balancing adjustment for same and include in your tax return.

    The building allowance and depreciation components will be allowed for when calculating the CG or new cost base.

    The cost to rebuild (excluding plant and equipment) less any capital gain you would have made on the insurance proceeds if not for the roll over plus the cost base of the land (as calculated by a special formula) is your new first element cost base for the property. But if the insurance company simply replaces the house then your cost base stays as it always was.

    You can claim building allowance on the new replacement asset going forward either using a depreciation report or building cost records.

    The portion of the insurance proceeds to cover depreciable assets is treated as the amount you received for the sale of the plant and equipment but you MAY utilise roll over relief to ignore any profit made - but you must continue to claim depreciation with your current written down values rather than the value of the new equipment.

    Told you it was complicated
     
    Last edited: 3rd Jan, 2013
  5. propertyVIC

    propertyVIC PropertyVIC

    Joined:
    28th Aug, 2009
    Messages:
    195
    Location:
    Perth, WA
    Thanks for the detailed reply... Will defo be getting professionals involved.