hi accounting gurus,
an additional question has popped up as i’m preparing my tax return… will be meeting the accountant when all done from my end but just trying to get answers to a few things first if possible…
My memory is telling me I read something in the past, possibly on here and possibly to do with a tax ruling, that if a hot water system in IP is damaged beyond repair and if it is replaced with the exact same model/capacity (ie no improvement made) then the entire replacement cost can be classed as a REPAIR rather than an asset to be depreciated.
Am I dreaming? I did ring the ATO and the guy I spoke with said to the best of his understanding it was still a new asset to be depreciated as it was replaced in its entirety, but my brain is recalling something unique about HWS and as long as its life for like and no improvement then it can be claimed as repair.
Can someone set me straight either with link to the ruling or confirmation, or tell me that regardless of my thoughts this is not a repair!
Cheers,
EmmaThis is a grey area of tax law but from what I remember of tax law it is a replacement of the whole unit and is not a repair.
see this link I found on the subject
http://sites.thomsonreuters.com.au/tainsight/2009/06/12/repairs-v-improvement/
http://www.washingtonbrown.com.au/property-repairs
http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR9723/nat/ato/00001http://law.ato.gov.au/atolaw/view.htm?Docid=TXR/TR9723/NAT/ATO/00001
see point 35 this may be what you are thinking of
remember tax rulings can't be relied on they are not set in concrete they do not set a precedent in law and you may have to apply for a tax ruling via your accountant for your particular situation.Ask the ATO how to repair a split HWS ? They gotta be kidding.
If the cost of repair exceeds the cost of replacement, what then ? Spend more and claim?, If we made decisions like that nationally then they’d wonder why businesses were going bust and not paying tax and people out of jobs. Mostly, unless it’s just an element replacement, HWS’s are not repairable.
cheers
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The life of a hws is only 10 years. You write off any undepreciated value of the old unit & depreciate the new one. If you are so delicately balanced is property really for you?
I really appreciate the first two replies, and goes to show there certainly is ambiguity here. So will discuss with my accountant.
I have no appreciation for the insinuation made about my personal circumstances in the most recent comment which is rude, unfounded and completely untrue.
The hot water tank assembly with its heating element etc. is an asset by itself.
You have replaced the entire asset.
i.e. you have scrapped the old one, which is a balancing event. The cost of removal of the old one is part of the old asset cost.
You start to depreciate the the cost of the new one over its effective life.
So … immediate deduction for the residual write-off of the old system.
But no deduction except via capital allowances for the new one.
Cheers,
Rob
No offence meant. Just pointing out that all too many investors want their cake & eat it when there are plenty of precedents.
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