» Scrapping

How to calculate scrapping value in depreciation

BMT team — Sun, 13 Nov 2022 15:07:09 +0000

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 Key points: Scrapping value is the un-deducted value of a depreciable asset. When a business owner or commercial investor disposes of an asset, they can claim an instant deduction for the scrapping value. A tax depreciation schedule is usually required to calculate scrapping value in depreciation. 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.

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Claiming depreciation on retail fit out

BMT team — Fri, 15 Oct 2021 23:10:25 +0000

The retail industry is in state of transformation, especially given the advancements in technology and the introduction of online shopping. Retail stores are having to adjust to new trends in order to stay relevant to the modern-day consumer. As online shopping becomes more prevalent and consumer demands grow, it’s important to ensure your retail space is designed to engage customers and optimise their shopping experience. Fortunately renewing or redesigning your retail fit out doesn’t have to cost you a fortune, particularly if you’re claiming depreciation correctly. In this article we will look at: What is retail fit out? What is depreciation? What is scrapping? How to claim depreciation for your retail fit out What is retail fit out? Retail fit out refers to the assets installed in an income-producing retail property. Examples of common retail assets include carpet, air-conditioning units, firefighting equipment, blinds, shelving and security systems. Property owners and tenants are both entitled to claim depreciation deductions for these assets. When an owner upgrades their property’s fit-out prior to putting it up for lease it has a number of benefits, including higher negotiated lease arrangements and in turn, rent return. What is depreciation? Depreciation is the natural wear and tear that occurs to a building and the assets within it over time. Legislation allows the owners of any income-producing property to claim this wear and tear as a tax deduction. For some commercial properties, depreciation deductions can total to hundreds of thousands of dollars, reducing tax liabilities and boosting cash return. When depreciation is being applied to removable plant and equipment assets like retail fit out, it can become complicated. This is because both the owner and the tenants of the property can claim deductions for the depreciation of items. Commercial tenants are able to claim depreciation for any retail fit out they add to a property once their lease starts. The owner can also simultaneously claim deductions for any plant and equipment items originally contained within the property. Each plant and equipment item should be depreciated based on its individual effective life as set by the Australian Taxation Office. Some assets will also entitle the owner to claim an immediate write-off or to add them to a low-value pool to increase deductions sooner. The rules surrounding who can claim what and when applies to all commercial industries and building types. Including hospitality, manufacturing, healthcare and logistics. It’s also important for building owners and tenants to be aware of the financial benefits of scrapping existing retail fit out as this can significantly increase the deductions available. What is scrapping? Scrapping refers to the removal and disposal of depreciable assets from an income-producing property. When these assets are scrapped, the owners and tenants may be eligible to claim the remaining depreciable value as an immediate tax deduction. Depending on lease conditions, if a tenant vacates a building and does not remove the retail fit out from the building, the owner of the property may still be able to claim the remaining depreciation for these items. However, if a tenant’s lease stipulates that the property must be returned to its original condition at the end of the lease, the tenant can benefit by claiming any remaining depreciation on the items that are removed and scrapped from the property. How to claim depreciation for your retail fit out Given the complexities around scrapping and depreciation for retail fit out, both owners and tenants should contact a specialist Quantity Surveyor to prepare a depreciation schedule. Quantity Surveyors are qualified professionals who specialise in building measurement and estimating the value of construction costs. They use their skills to ascertain the costs of building works on any project. At BMT Tax Depreciation, our qualified Quantity Surveyors can help you uncover every depreciation deduction you’re entitled to. BMT can provide separate depreciation schedules for owners and tenants that outline the deductions available for each party. These deductions can be beneficial in improving cash flow and reducing the annual costs of renting or holding the property. To find out the depreciation deductions available to you, Request A Quote or contact one of our expert staff on 1300 728 726.

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What happens to assets when a business closes?

BMT team — Wed, 14 Apr 2021 23:07:52 +0000

The latest Australian Bureau of Statistics report sheds light on the Australian business landscape. During the 2019-20 financial year, the business exit rate was 12.5 per cent, with a total of 291,821 businesses exiting the business community. What happens to the assets these businesses own once they close their doors? The answer largely depends on what the then-business owner does with the asset after they close. In this article, we will cover the three key scenarios: Scenario 1: They sell the asset Scenario 2: They dispose of the asset Scenario 3: They keep the asset Scenario 1: They sell the asset Several factors need to be considered when a business sells an asset. Firstly, any asset that is sold at a profit may trigger a capital gains tax (CGT) liability. CGT is paid if a capital gain is made when an asset that was used to produce income is sold. A number of factors impact the amount of CGT payable, and if the business is classed as a ‘small business entity’ further discounts and exemptions can apply. Scenario 2: They dispose of the asset If the business owner decides to dispose of the asset (i.e., throw it away), they may be able to take advantage of a process called scrapping. Scrapping allows the business to claim an immediate tax deduction of the undeducted depreciable value in the year of disposal. ‘Depreciable value’ is essentially the value of the asset after its natural wear and tear. For example, if a business closed and disposed of benchtops that held the undeducted depreciable value of $3,000, they could claim this as an instant deduction for that financial year. When determining whether the closing business can claim scrapping upon asset disposal, factors include the business’s size, whether it was still operational while the asset was ‘scrapped’ and what depreciation rules the business chose. Whichever the case, a BMT Tax Depreciation Schedule has everything the business owner’s accountant needs to make the appropriate calculation. Scenario 3: They keep the asset A business that closes could keep an asset for several reasons. Maybe they are planning to reopen a new business in the future, or they might want to use it for personal use. This means they won’t be able to scrap the asset as it’s not disposed of, and they also won’t be subjected to any CGT as they aren’t selling the asset. But depending on the businesses model, size and if it was registered for goods and services tax (GST), there may be some GST implications or a GST modification requirement. An accountant may also need to do a balancing adjustment event when the asset has stopped producing an assessable income. This balancing adjustment won’t necessarily work like scrapping, as the asset will still have reasonable market value. The business owner’s financial situation can change the ongoing use of the asset. For example, if they held a loan on the asset, they can no longer claim the interest repayments as tax deductible business expense. To learn more about depreciation and how you can claim scrapped deductions, call BMT on 1300 728 726 or Request a Quote.

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Are home renovations tax deductible?

BMT team — Fri, 11 Oct 2019 03:07:49 +0000

More and more property investors are seeking to improve capital values and increase rental income by renovating their properties, rather than purchasing anew. While most investors are aware renovations can increase rental income and boost cash flow, many renovators are missing out on thousands of dollars by failing to claim depreciation deductions. In this article we will explore: Are home renovations tax deductible? What is scrapping? Important legislation for property investors Home renovation case study Are home renovations tax deductible? Most residential properties have significant depreciable value, which can be claimed prior to and after home renovations are completed. The Australian Taxation Office (ATO) allows owners of income-producing properties to claim depreciation deductions for the natural wear and tear that occurs to a building and its assets over time. Depreciation can be claimed for a building’s structure via capital works deductions and for the plant and equipment assets contained within the property. While capital works can be claimed in both new and old residential property, plant and equipment deductions are limited to new property. This can affect what can and can’t be claimed when renovating. Regardless of the age of the property, it’s important to speak with a specialist Quantity Surveyor before completing any work. There may be substantial depreciation deductions available for any structural elements being removed during the renovation process. This is known as scrapping. What is scrapping? Scrapping allows you to claim depreciation deductions for the residual value of removed assets in the year the items are removed. To take advantage of deductions for scrapped assets, a depreciation schedule must be arranged both before and after the renovation takes place. The pre-renovation depreciation schedule will detail asset values and can act as evidence in the event of an Australian Taxation Office audit. Once the renovation has been undertaken, a Quantity Surveyor will compile an itemised schedule detailing the depreciation deductions available for the brand-new plant and equipment assets and capital improvements. The depreciation schedule will also show the undeducted value of the removed structural assets. Important legislation for property investors Investors who purchase second-hand residential property after 7:30pm on the 9th of May 2017 are not able to claim scrapping deductions for existing plant and equipment assets. If you exchanged contracts prior to this date, you should discuss your eligibility with a Quantity Surveyor for any residual depreciation that may apply. If you live in your rental property while renovating, any newly installed assets will also be classed as previously used. As a result, you’ll be at risk of losing your tax benefits. Unless there is good reason, investors who are planning on installing new plant and equipment assets should make these additions once the property has been listed for rent. This will ensure you are eligible to claim the maximum depreciation deductions available. Home renovation case study Jonathan purchased a ten year old two-bedroom house after 7:30pm on the 9th of May 2017. After renting his property out for a year, he decides to renovate the bathroom. According to current legislation passed in November 2017, he is ineligible to claim scrapping deductions for existing plant and equipment assets. Capital works deductions for structural assets such as tiles, bathtubs, toilets, sinks and basins are unaffected by the legislation changes and can still be claimed. These deductions typically make up 85-90 per cent of a total depreciation claim. Jonathan arranged a property depreciation schedule when he originally purchased the property. After hearing about the additional deductions available when renovating from his accountant, Jonathan contacted a Quantity Surveyor before starting work to find out more. Jonathan found he was able to use his existing depreciation schedule to work out the un-deducted value of structural assets to be removed during the renovation. The table below outlines the deductions Jonathan could claim for the removed structural assets as well as any capital improvements made during the renovation. After renovations, Jonathan was able to claim $7,830 in scrapping deductions and $333 in capital improvement deductions. Combined, this totals more than $8,000 in depreciation deductions in the first full financial year. He was able to maximise the depreciation deductions on his investment property both before and after the renovation. To maximise depreciation deductions during home renovations, consult with a specialist Quantity Surveyor before getting started.

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The Block, low rates and spring makes for a season of increased renovation spending

Bradley Beer — Wed, 03 Sep 2014 05:53:19 +0000

Economic research undertaken for The Saturday Age suggests the popular reality television show The Block has a statistically significant impact on the economy when it comes to renovations. Spending on renovations across the nation is boosted by $251 million each time the series is broadcasted. Read the full article here. So with spring in the air, low interest rates and the current series of The Block airing on our television screens, it’s almost a given that Australians will be spending big on their renovation projects. People are investing in renovation projects on their properties as an alternative to a complete upgrade. Investment property owners are often unaware of the tax deductions available. It is possible for Australians to claim thousands back after renovating a property which generates income. See: Bradley Beer on The Block Glasshouse: Terraces Take Shape Renovations can be expensive, so it makes financial sense to take full advantage of the tax depreciation deductions available. As a building gets older, items wear out – they depreciate. The Australian Taxation Office allows property owners to claim this depreciation as a deduction. Depreciation deductions can be claimed by any property owner who obtains income from their property. To ensure property owners are making the most of the tax deductions available, they should consider a pre-renovation depreciation schedule. Old assets within a property can be worth thousands of dollars. When these old assets (like carpet and hot water systems) are removed, the owner may be entitled to claim them as a tax deduction. A Quantity Surveyor, who is qualified to calculate values and construction costs, can ensure the owners are not throwing dollars away. Essentially, if an item is removed or replaced as a result of a renovation, the current value of the item can be written-off as a tax deduction in the year the expense is incurred. Learn more: What is scrapping? A Quantity Surveyor will complete a schedule prior to a renovation or refurbishment to identify the value of all assets already existing within the property. A second schedule is then prepared after completion of the renovation, identifying the value of all new assets within the property. The removed assets can be written-off immediately. Depreciation deductions are also available for the structure of qualified buildings. Any construction (such as a new roof, walls or ceiling) carried out after September 1987 (residential property) and 20 July 1982 (non-residential property) is eligible for the capital works allowance (division 43). A Quantity Surveyor who specialises in tax depreciation will always take into consideration renovations carried out by previous owners as this becomes an additional tax benefit for the current owner. Always consult a depreciation expert about an investment property’s depreciation entitlements. Taking full advantage of the available tax benefits on an investment property can improve a property owner’s cash flow each financial year. BMT Tax Depreciation offer obligation free advice about a property’s depreciation potential pre and post renovation. Simply call 1300 728 726 to discuss any property scenario.

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