Scrapping Reports.
Record what is being removed, before it is gone.
Renovating, replacing or demolishing part of an investment property? Some of the assets and building works you remove may still have value your accountant can consider. A Scrapping Report documents what comes out and what remained undeducted. Pricing confirmed on enquiry.
Fictional rental · items removed in a renovation
Fictional property and figures, for illustration only. Whether any amount can be claimed, and when, is for your accountant.
Writing off what is left when something is removed
Depreciation spreads the cost of an asset, or of a building, over many years. If you remove or demolish something part-way through, some of that cost may not have been claimed yet. “Scrapping” is the everyday name for dealing with that remaining amount in the year the item goes.
A TaxShield Scrapping Report records what is being removed and the remaining undeducted value of each item, so your accountant has the figures and the evidence when they decide what can be claimed.
Two sets of tax rules
Source: ATO, Disposal of a depreciating asset; ATO, Capital works deductions; Income Tax Assessment Act 1997, section 43-40.
Plant and equipment, and the building itself
The two are treated separately, so a Scrapping Report lists them separately.
Plant and equipment
- Examples
- Carpet, blinds, ovens, dishwashers, hot water systems, air conditioners.
- When it applies
- A balancing adjustment event generally happens when you stop holding or using an asset, for example when you scrap, sell or lose it.
- How it is worked out
- Your accountant compares what you receive for the asset (often nothing, if it goes to the tip) with its remaining value: its cost less the decline in value already claimed.
- Which way it goes
- If the remaining value is higher, the difference may be deductible. If you receive more than the remaining value, the excess is generally assessable income.
Building and structural works
- Examples
- Walls, roof, extensions, fences, retaining walls and sealed driveways.
- When it applies
- If all or part of the building is destroyed, a balancing deduction may be available. The ATO says this includes a voluntary demolition.
- How it is worked out
- The construction cost not yet deducted, less any insurance or salvage amounts you receive.
- Use before the works
- The part destroyed generally needs to have been used to produce income immediately before. A home lived in before demolition can be treated very differently.
The 9 May 2017 rule
If you bought an established residential property on or after 9 May 2017, the second-hand plant and equipment that came with it generally can’t be depreciated by you, so it generally can’t be scrapped for a claim either. New items you bought and installed yourself, and Division 43 building works, are not affected.
Exceptions apply, for example for properties that are not used to provide residential accommodation, such as commercial property. Your accountant confirms whether the rule applies to you.
When a Scrapping Report is useful
Any time income-producing assets or building works are coming out.
Kitchen and bathroom renovations
Cabinetry, benchtops, fixtures and appliances come out, and each has its own history and remaining value.
Flooring, blinds and appliances replaced
A refresh between tenancies can remove a lot of items that are still partly depreciated.
Knockdown and rebuild
The existing building is demolished and a new one built. What is removed and the order of events both matter.
Removing a structure
An old garage, deck, extension or outbuilding is demolished or replaced.
Commercial refurbishments and fit-outs
Partitions, ceilings, lighting and air conditioning are stripped out. Different rules can apply to non-residential property.
Accountants, builders and agents
You are planning works for a client. Talk to us about arranging a record of the property before the work begins.
Book before the work starts
Once an item is in a skip, the evidence goes with it. General information only. Confirm how it applies to you with your tax adviser.
Record it while it still exists
The remaining value depends on what each item is, when it was installed and what it cost. That is far easier to document before it is removed, using an inspection, plans and photos.
The order of events can matter
For building works, the ATO says a deduction for destruction generally needs the property to have been used to produce income straight before. If the home was lived in first, talk to your accountant before the demolition date is locked in.
Money you receive is taken into account
Amounts received for a removed asset, and insurance or salvage received for destroyed building works, reduce what can be claimed.
New works start their own claims
A Scrapping Report covers what comes out. New building works and new assets are generally recorded in a depreciation schedule for the property.
Three simple steps to your report
Tell us about the works. We confirm the fee, then prepare your report.
Tell us about the works
What is coming out, the type of property, when you bought it and when the work starts or finished.
We confirm the fee and assess
We confirm the scope and fee before we start. We then review the plans, photos and records, and arrange an inspection where one is needed.
Receive your report
You get a report for your accountant, listing the items removed and their estimated remaining values.
Fee confirmed before we start
Every renovation is different, so we confirm the fee for yours up front.
Scrapping Report
The fee depends on the property and the scope of the works. We confirm it before any work begins.
- A record of the assets and building works being removed
- An estimate of the remaining value of each item
- Prepared with qualified quantity surveying expertise
- A written report for your accountant or tax adviser
Inspection, where needed
If an inspection is needed, we tell you before work begins.
Commercial and larger projects
Every commercial property and refurbishment is different. Tell us about it and we will confirm the scope and fee.
Common questions
What is a Scrapping Report?
It is a report prepared with qualified quantity surveying expertise that lists the assets and building works being removed from an income-producing property, with an estimate of the remaining undeducted value of each. Your accountant uses it when deciding what can be claimed.
Will I get a deduction for everything I remove?
Not necessarily. Removing something does not automatically create a deduction. It depends on the item, how the property was used, what has already been claimed, what you receive when it goes, and the tax rules that apply to you. Your accountant decides.
I bought an established home on or after 9 May 2017. Can I still scrap anything?
If you bought an established residential property on or after 9 May 2017, the second-hand plant and equipment in it generally can’t be depreciated by you, so it generally can’t be scrapped for a claim either. New items you installed yourself and the building works (Division 43) are not affected, and exceptions apply, for example for commercial property. Ask your accountant how the rule applies to you.
Does the property have to be a rental?
Generally, the assets and building works need to have been used to produce income, such as rent, before they were removed. If the property was lived in first, the order of events matters, so speak to your accountant before you set the demolition date.
When should I order a report?
Before the work starts. The report depends on what existed and what it was worth before removal, and that is hard to rebuild afterwards. If the work has already started or finished, tell us what records and photos you have and we will tell you what we can document.
How is this different from a depreciation schedule?
A tax depreciation schedule sets out the deductions you may be able to claim over time while you own an income-producing property. A Scrapping Report deals with what is removed, so it records what is leaving and its remaining value. If you have a schedule from us already, tell us.
Will the ATO accept the report?
We can’t speak for the ATO or guarantee how any figure will be treated. Your accountant or tax adviser decides how to use the report in your return and can tell you what the ATO requires in your situation.
How much does a Scrapping Report cost?
Pricing is confirmed on enquiry, because it depends on the property and the works. We confirm the fee before any work begins.
Sources: ATO, Disposal of a depreciating asset (balancing adjustment events); ATO, Capital works deductions; ATO, Depreciating assets and the second-hand residential property restriction (from 9 May 2017); Income Tax Assessment Act 1997, sections 43-40 and 43-250; ATO Interpretative Decisions 2010/35 and 2010/36. General information only.
Renovating or demolishing?
Tell us about the works before they start, and we will confirm the fee and how we can help.
Call 1300 780 892 · [email protected] · TaxShield Pty Ltd ABN 79 156 400 510
General information only, not tax advice. Always confirm what you can claim with a registered tax agent or accountant.