Over the last 6 months, with the unfortunate spate of different Natural Disasters occurring Napier & Blakeley have been requested from numerous clients what effect does it have on their existing and future capital allowances for their investment properties.

The question arises where funds from a third party such as an insurer pays for capital works.

No Insurance 
Where there is no insurance claim, then all demolished capital items may be written off from the date of demolition.  All newly installed and refurbished costs may be claimed once works have been completed.
Tip – ensure you keep all records of expenditure including all associated on costs such as skip hire, professional fees and the like. 

Insured asset replacement
Depreciation is broken into two main components being Division 40 and 43.  Each of these elements need to be adjusted separately.

Division 43 (Buildings)
Consideration needs to be made as to the value of money received to replace the asset and the written down value at the time of destruction.  If the value of the insurance payout is greater than the written down value then no balancing adjustment (write off) is available.  The new asset is eligible to claim Division 43 deductions.

View a Legal case for Division 43

 Division 40 (Depreciating assets or plant and equipment)
If a replacement asset is provided then the taxpayer can choose to apply the money received to reduce the cost base of the replacement asset.  This means that the destroyed asset may not have been written off but the new written down value of the asset after adjustment may be depreciated.
Tip – timing is important when applying this relief. 

i.e. a table with a written down value of $100 is destroyed by flood.  The taxpayer receives an insurance payout of $150, used to acquire a new table.  The taxpayer can choose not to treat the $50 as income, but to use the amount to reduce the cost base of the replacement to $100. 

It is important to identify the assets within your existing schedules that are/have been removed so as to ascertain their value at the time of removal.

Napier & Blakeley’s services are tailored to each clients needs when it comes to maintaining accurate depreciation schedules and asset registers –  it is a service we call Property Tax Profiling (PTP^TM).

Napier & Blakeley are the foremost provider of tax depreciation schedules throughout Australia providing not just value for money but the very best returns.

Please do not hesitate to contact us for all of your depreciation needs.

Queensland – Paul Mazoletti
0408 749 202
pmazoletti@napierblakeley.com

South Australia - John Mathew
0414 559 326
jmathew@napierblakeley.com

 

The above information relates only to properties used to derive an income.  As with all situations relating to tax you must ensure that you receive specific advice based on your circumstances, this information is general in nature and should not be solely relied upon.

Napier & Blakeley services:

• Tax depreciation estimates
• Tax depreciation schedules
• Asset registers
• Technical due diligence
• Condition assessments
• Make good assessments
• Capital expenditure forecasting
• Insurance replacement costs assessments

QLD /  NT  -  Paul Mazoletti – 07 3221 8255
NSW / ACT / WA / NZ  -   Alastair Walker - 02 9299 1899
VIC /  SA  / TAS  -  Peter Frith,  John Mathew -  03 9915 6300