Umbrella Accountants – Property Accountants Brisbane
John & Mary bought a rental property in the year 2000, however, are now considering demolishing the house to build a new duplex. The old rental property was built in the late 1980s, is tired and causing lots of repairs and maintenance costs, and can only now attract low rental returns.
The area is now part of the city’s urban renewal, with many properties in the area being demolished and medium-density homes being built.
So John & Mary have decided to demolish the old rental and build a new 3 bedroom, 2 bathroom, double garage duplex on the site to maximise rental returns, capital growth going forward, depreciation deductions, and attract a better class of tenants.
Scrapping is the removal and disposal of any potentially depreciable assets from an investment property. In other words, it is the demolition of any existing structure or fixture onsite that would have been eligible to claim deductions for depreciation.
Essentially, if an item is scrapped the amount that is yet to be written off for a particular asset (the residual value) can generally be claimed as a 100% tax deduction at the time of disposal if Div 40, and CGT implication if Div 43.
Scrapping of depreciable assets can be either plant & equipment (Div 40) or structural (Div43)
John & Mary obtained a quantity surveyor report at the time of purchase back in 2000. As the property was purchased post 7.30 pm (EST) on 13 May 1997, there is now a clawback, so the full amount of the Div 43 amount cannot be written off. Any plant & equipment can also be written off.
Example
Purchase property in 2000 for $400,000
The Quantity Surveyor has allocated $275,000 for the land, $100,000 Structural and $25,000 for Plant & Equipment.
The original Plant & Equipment had been depreciated or since replaced with new items being depreciated.
Capital Losses of Demolition
$100,000 structural works Div 43, previously claim – $100,000@2.5%@14yrs = $35,000
$100,000 – $35,000 = $65,000 Written Down Value (WDV)
$20,000 demolition costs.
(50%, as it could be argued other 50% was site preparation for the new duplex)
$75,000 can be claimed as capital losses against other capital gains or carried forward, see also ATO Claiming Capital Losses
Existing Plant & Equipment (Div 40) is valued separately, any value over the (WDV) is assessable in the current year / any value below the WDV is deductible.
New building
The new duplex constructed will have its own cost base, separate from the original land value, which will be depreciated and come into play if and when this is sold.
Important Timing Considerations – Especially Around Financial Year-End ⚠️ Important Timing Considerations – Especially Around Financial Year-End Scenario Overview Option Granted: 1 May 2024 Option Fee: $50,000 (non-refundable) to purchase a commercial property for...
Main Points Considered A New Zealand Citizen living in Australia, do they qualify for the First Home Owners Grant (FHOG) Also, can they qualify for the First Home Owners Stamp Duty Concessions What if they rent out the spare bedroom to help pay the mortgage? Scenario...
Principal Place of Residence Exemption Loss if Sold While Overseas Summary of how the Principal Place of Residence (PPR) Exemption is impacted by moving overseas. When Australian homeowners move overseas and become non-residents for tax purposes, selling their...
Having an investment property prior or posted to it being a principal place of residence has tricky CGT Calculations. Capital Gains Tax (CGT) is an essential consideration for property owners when selling a property used for different purposes over time. This blog...
Picture of a vacant block of land to illustrate it may be subject to land tax What is Land Tax? Land tax is a state and territory-imposed tax on the unimproved value of taxable land owned by individuals, companies, and trusts. It is calculated annually based on a...
What are the tax and investment considerations for a Granny Flat above versus a Tiny Home below? Income Tax Return Reporting - Income Streaming Tiny Homes Tiny home ownership does not have to follow the ownership interest of the underlying property ownership. For...
Secondary Dwelling From December 2023 the Victorian Government has passed planning changes to make it easier to build Granny Flats - or "small secondary dwellings", on existing homes. The Victorian Premier Jacinta Allan revealed that planning permits will no longer be...
The ATO is particularly targeting property investors that are not using the help of a specialist property tax accountant like Umbrella Property Accountant, due to the high error rate being discovered from ATO Audits. The ATO Audits into self-preparers have uncovered...
Gold Coast - Example of the Housing Rental Competing Forces Many Apartments are sitting empty most of the year, including an entire beachfront tower. Gold Coast mayor Tom Tate cited an entire high-rise sitting empty in the triple tower Jewel development at Surfers...
Victoria was the most locked-down state in Australia, if not the world during Covid, resulting in the Victorian Government accruing over $30 Billion in debt to keep the doors closed. Victorian Statement Government wants to raise $8.6 Billion over the next 4 years by...
