Are you a business or commercial property owner looking to make the most out of updating your fit-out or your next renovation?
The key to making the most out of your spend is claiming a deduction for removed assets, this is called scrapping. Understanding scrapping value and how it’s calculated can boost your cash flow to its full potential, even after you have thrown items in the bin!
In this article we will explore:
- What is scrapping value and how does it work?
- How to accurately calculate scrapping value in depreciation
- Taking advantage of scrapping value with new business incentives
- Claim scrapping with the depreciation specialist
What is scrapping value and how does it work?
Scrapping value is essentially the un-claimed or un-deducted depreciable value of an asset. The basic equation of calculating scrapping value is:
Original depreciable value – deducted value to date = scrapping value
For example, if $5,000 was an asset’s original value and at the time of the asset’s disposal the remaining value was $3,000 (after claiming $2,000 in depreciation), this would be the ‘scrapping value’. The owner could then claim the $3,000 as an instant deduction in the same financial year.
How to accurately calculate scrapping value in depreciation
The scrapping value can be easily calculated by having a tax depreciation schedule prepared by a specialist quantity surveyor.
A specialist will need to prepare a schedule both before and after assets are disposed of.
The purpose of the initial schedule is to show the original assets so the scrapping value can be calculated once the assets are removed. The second schedule will include any new replaced assets and any existing assets that weren’t removed.
Taking advantage of scrapping value with new business incentives
Right now is arguably the best time for business owners to take advantage of scrapping.
The temporary full expensing policy allows most businesses to instantly deduct any new plant and equipment assets that they purchase. The below scenario shows how this can supercharge first-year deductions.
Kayla owns a retail business and has decided to update her store’s fit-out. She organised a tax depreciation schedule to be prepared prior to the fit-out renovation.
The schedule found that the total scrapping value of the removed fit-out came to $25,000. Her new fit-out plant and equipment assets came to a total of $65,000. Some of the assets included shelfing, tables, clothing racks, change room curtains and carpets.
By combining the scrapping value deduction and full expensing the new assets, Kayla can benefit from a huge first-year deduction of $90,000.
Claim scrapping with the depreciation specialist
You can ensure you claim the maximum scrapping value available with BMT Tax Depreciation. BMT has helped thousands of investors and business owners claim depreciation through scrapped deductions.
To find out more about BMT and the additional services they offer, contact the team on 1300 728 726 or Request a Quote.