Tax Tip

From: Dale Gatherum-Goss


Hi

Just a quick thought that might add some money to your pocket at some time or another.

If you own an IP and have the kitchen replaced the balance of the old kitchen's depreciation is written off.

Sounds obvious I know, but, if the kitchen was 5 years old and a garish colour there may be an automatic tax deduction of many thousands of dollars about to go begging unless you are aware of the rules.

I hope this helps.

Dale
 
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Reply: 1
From: Nigel W


Dale

Without wishing to rely upon this as "Tax advice" etc
would this reasoning extend to chattels used exclusively for the IP game which are say stolen and then replaced by insurance, say a lawnmower or computer?

Whilst we will all seek professional advice about it, just let me make sure I understand your point.

Let's say the lawnmower was 2 years old and was bought for $3000 (big lawnmower!) but over 2 years depreciated back (at whatever the ATO's suggested rate is but lets assume its value is now $2000). The mower is stolen. A replacement mower with a value of $3500 is then provided under an insurance policy.

Does that mean in this tax year you get to:
a) 100% write off the residual value of the stolen mower ie $2,000
AND
b) for the days in the fin year you owned the replacement mower, depreciate it at the appropriate rate?

Thanks for your thoughts, and not seeking to rely on them!

Cheers
N.
 
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Reply: 1.1
From: Sergey Golovin


Dale,

Could you say it again please?
About depreciation?
Could you extend your comment please?

Serge.
 
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Reply: 1.2
From: Dale Gatherum-Goss


Hi

Yes, your reasoning is correct. Any depreciable item is able to have the balance of it's value written off if that asset was to be destroyed, lost or stolen.

Good luck with this idea.

Dale

Ps I am happy enough for you to treat this as advice. I have nothing to hide or worry about.
 
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Reply: 1.1.1
From: Dale Gatherum-Goss


Hi

I'm sorry if I was a little vague.

What I was trying to say was that if you own an IP, and, you decide to rip out the old kitchen and replace it with a new one, then, you can get a tax deduction for the unclaimed portion of the depreciation on the old kitchen.

As Nigel identified, this same principle applies to other assets within the IP as well.

It may just help someone pay less tax. Perhaps you, Serge.

Good luck and let me know if I am still not clear enough.

Dale
 
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Reply: 1.1.1.1
From: Sergey Golovin


No, no, it is fine, thanks Dale.
It is great. Thanks for that.

Hey, you most welcome. Don’t be too shy next time around.

Once again thank you.

Serge.
 
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Reply: 1.2.1.1
From: Mike .


Hi Nigel,

"When an asset on which you have claimed depreciation is sold, lost, scrapped, given away or destroyed or there is a partial change in ownership of the asset, you need to compare the termination value on the sale, loss or destruction - including insurance proceeds - with the asset's undeducted cost or written down value at the time." (page 7 ATO Guide to Depreciation, 2000 ed)

In the lawnmower example, if no insurance was received then the termination value is zero (since it is stolen), and since this is less than both the written down value($2000) and undeducted cost($2000) you can deduct $2000 in the same year.

However, if insurance($3500) is received, the termination value is $1500 which is the excess, up to the total amount of depreciation deductions you have already claimed($1000), and $500 more than its original cost($3000) and is treated as assessable income.

The kitchen example of Dale's is interesting because it depreciates at the same rate as the building, if it is fixed (2.5%). However, it has been scrapped after only 5 years! Well before the end of its effective life. This could mean a claim of around $10,000. You'd be a brave person to try that. Would that arouse the interest of the ATO and induce a desk audit, perhaps?

Regards, Mike
 
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Reply: 1.2.1.1.1
From: Dale Gatherum-Goss


Hi

No, the tax office have passed this through an audit previously and made no adverse comment at all.

Of course, if I was going to claim this sort of expenses, I would normally have a QS report proving the original cost and the amount of depreciation left to claim in one big go.

Please, do not be afraid of claiming large deductions. The ATO are there to ensure that we apply the law correctly - in their eyes, anyway.

As always, protect your arse with good records, then go for every dollar that you can. You'd be a fool not to.

Dale
 
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