Hey guys,
Before I send off to the accountant was just wondering. One of my investment houses was newly built couple of years ago and had a $5,000 ducted air conditioning unit in it. I have been depreciating it for last couple years. Lets say the written down value of that is now $3,000. It broke and has been replaced by warranty.
Now do I stop claiming depreciation on the old one and start on the new one? But what value do I put on the new one if I didn't actually pay anything? Wondered if anyone knows how best to treat that asset I heard depreciator etc are on these forums a bit and might be able to help unless someone else has had a similar thing.
Although it is brand new, you have only paid for one unit so you continue depreciating from the current depreciated value. The answer would be different had you had a fusion claim on your insurance, received a payout and bought a new one.
Scott, please forgive me while I geek out on tax. Please correct me if I have missed something.
My understanding is Livewildcard has involuntarily disposed of the original A/C unit and received a new replacement A/C unit.
Based on my understanding, for tax this means;
- You have a balancing adjustment on the disposal of your original A/C unit
- Adjustment = MV of new A/C let's guess $5,500 less WDV $3,000 = $2,500 taxable income
- The taxable balancing adjustment is offset to a minimum of zero by the cost of the replacement A/C unit, Adjustment $2,500 – Offset $2,500 = nil taxable income
- You reduce the opening value of the replacement A/C unit by any offset and start depreciating. MV Cost $5,500 less Offset $2,500 = Opening value $3,000
- So after all that you just have a new A/C unit depreciating at the same written down value as the original unit. However, the effective life of the asset restarts as you have a new asset.
- Isn't tax fun!
This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.
No dramas Richard, with the base being reset to $3k, would you then use the diminishing balance method to max out the deductions early on?
Yes, very good point. Diminishing balance should be used to increase deductions in the early years.
It is an unfortunate tax outcome that when an asset is replaced under warranty you effectively claim your remaining depreciation over a longer time period. But I suppose you now have brand spanking new asset.
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