I've got a query in regards to the treatment of building depreciation allowance claims at the time of disposal.
I am trying to assertain the real benefit of spaending approx $500 on a building depreciation schedule and making annual claims based on this over say 5 to 10 years.
I've read that there is no need to adjust for claims (recoup) at the time of disposal, unlike depreciation of "chattels".
Is this true ?….. or is there a sting in the tail of the tax legislation re this ?
I would think this is a generous bit of work from the taxman if true.Even though the building write off is recouped upon sale, you have claimed it during the life of the investment at your full marginal tax rate, but get a 50% CGT discount on sale.
The time value of money also places a greater value on claiming as much as you can as early as you can.
And lastly, the building write off is recouped even if you haven't claimed it, although there is now a concession if there is a good reason for not having claimed it.
Generally, the $500 depreciation report will be more than compensated by the increased tax refunds from the depreciation claims. And it is also tax deductible itself, so really $500 is probably costing $350 after tax. A $100k building cost gets you a $2,500 write off each year which is like $750 in the pocket. Thats not including the depreciation on other chattels.trajik wrote:Even though the building write off is recouped upon sale, you have claimed it during the life of the investment at your full marginal tax rate, but get a 50% CGT discount on sale.
The time value of money also places a greater value on claiming as much as you can as early as you can.
And lastly, the building write off is recouped even if you haven't claimed it, although there is now a concession if there is a good reason for not having claimed it.
Generally, the $500 depreciation report will be more than compensated by the increased tax refunds from the depreciation claims. And it is also tax deductible itself, so really $500 is probably costing $350 after tax. A $100k building cost gets you a $2,500 write off each year which is like $750 in the pocket. Thats not including the depreciation on other chattels.You state that the building write off is recouped even if you haven't claimed it.
Can you explain this further ?The building write off of 2.5% per year reduces the cost base of the property, whether or not you have claimed the write off. This is assuming the property is a post 13 May 1997 purchase. There are circumstances where this does not have to occur if it is reasonable and out of your control that you cannot establish the building cost. When the property is sold, the building write off that has, or should have been claimed is effectively recouped because the cost base has reduced by this amount.
hope that clears it for you.
ross
Well almost !! …… So
If no claims were made (assuming ithe property was purchased post 13 May 1997, and was eligible for CCWO as construction commenced post 18 July 1985), then how does the tax department assess the building cost given that a figure was never determined at the time of purchase ?
Also I can't believe that the amount effectively recouped applies whether or not the CCWO is claimed or not.
I would have thought that if a taxpayer elected to claim, then sure recouped amounts come into play at the time of disposal, but if no claims were made then likewise no adjustment would be necessary ?Surely this is the "sting " I referred to at the start !
This is one of those funny situations in the tax acts. They say if you are able to amend you can still claim it Hopefully it will be remedied in the future.
if you want a bit of reading go to the ATO website for individuals and look at the capital gains tax 2006 guidYes, it's a very tricky and unfair situation, but that's the ATO. Although I haven't personally seen them put this into practice you need to be aware of the fact.
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