The effects of Tropical Cyclone Debbie have been far reaching, with damage reported from Mackay, Airlie Beach and the Whitsunday Islands in the far north of Queensland to the northern New South Wales towns of Lismore and Murwillumbah situated on the Wilson and Tweed rivers.
According to the Insurance Council of Australia, the catastrophe is expected to cost billions. Already, more than 650 homes across Queensland have been deemed uninhabitable and this number is expected to be matched by those flooded in northern New South Wales.
Authorities have warned that flood waters could inundate more than 3,000 homes and 1,500 businesses, with that number expected to reach 8,000 homes if flood levels rise by just 1cm on the predicted peak.
For those who own residential investment properties or commercial businesses which have been affected by the disaster, there could be some relief provided by the opportunity to claim extra tax deductions for the items which need to be replaced.
Depreciation is a deduction available to owners of income producing properties due to the wear and tear which occurs to a building and the plant and equipment assets contained in the property. When part of the building structure or assets contained in a residential investment property or commercial building experiences damage and needs to be replaced, owners may be entitled to additional tax deductions.
If you receive an insurance payout for the destruction of a depreciating asset used to produce income, you will need to calculate a balancing adjustment.
The balancing adjustment is worked out by comparing the amount you received for the destruction of the asset, such as an insurance payout, with its adjustable value at the time it was destroyed. The adjustable value is the purchase price of the asset less its decline in value since you first used it.
If you only used the asset to produce assessable income and the amount you receive is:
- more than the adjustable value, the excess is included in your assessable income
- less than the adjustable value, you can claim a deduction for the difference
In a situation where there is no insurance claim, owners of residential investment properties or commercial buildings can take advantage of an additional method of claiming a deduction known as scrapping.
Scrapping allows investors to claim an immediate write-off for any remaining un-deducted depreciable value for items or structures which are removed from a property. While often utilised when an investor wishes to complete renovation work to their property, scrapping can also be applied in the event of a natural disaster.
In order to take advantage of any additional depreciation benefits which apply during a natural disaster, it is recommended to speak with our expert team.
A site inspection of the property and the structures or items planned for removal may need to take place to determine the undeducted value of items affected, particularly if the owner of the property doesn’t currently have a comprehensive depreciation schedule.
Examples of depreciable assets which may be affected by damage include carpets, blinds, hot water systems and air conditioners.
It is important that owners of residential investment properties and commercial buildings also consider depreciation deductions available for any new structures or assets which are installed to replace those which were damaged. They may require an updated depreciation schedule to capture any new deductions they can claim.
For those who have queries about the damage which has occurred to their property as a result of Cyclone Debbie, speak with one of our expert staff on 1300 728 726.
BMT also have a handy app BMT Rep Cost which provides an estimated replacement cost for any property. This app can be accessed at www.bmtqs.com.au/replacement-cost-calculator.