Are you a business owner looking to complete a renovation to update your business’ space? Any renovation comes with the demo work and removal of older assets that are being replaced.

This work is usually the dreaded part of any renovation, but did you know that you can claim depreciation on the assets you’ve removed? It’s possible through a process called scrapping. 

What is scrapping? 

Scrapping can be defined as ‘the taxation side’ of disposing of an income-producing asset. Basically, if a business disposes of an asset and it has remaining depreciable value, it can claim this amount as an instant tax deduction in the same financial year. 

Business owners can claim both the ‘scrapped’ amount of the old asset and the first-year deduction of any newly installed asset. This is common if the business is undergoing some form of renovation. 

In practice – scrapping assets

Kieran owns and runs a restaurant. At the end of the 2021 calendar year, he replaced all the restaurant’s freestanding furniture. 

The furniture that was removed still had $2,500 left in depreciable value. Kieran can claim this as an instant deduction in his business’s 2021/22 financial year tax return. 

Additionally, the new furniture he bought for the restaurant was valued at $25,000. Given that all the furniture was eligible for the current temporary full expensing policy, Kieran can also claim this entire cost as an instant deduction for the financial year. 

This means there are $27,500 in available tax deductions from the restaurant furniture update.

Does a business need to be a certain size to ‘scrap’ assets? 

The short answer is no. All business owners can claim scrapping as long as the asset is eligible.

To be eligible, a business simply needs to own the asset and the asset must be genuinely used to produce income (i.e. be used within their business) and have remaining depreciable value. 

This includes assets that were owned by someone else previously, like the previous tenant of the building. For example, if someone took over the lease of a store that had remaining fit-out (shelving, cupboard etc.) they could remove this to make way for their own fit-out and claim the remaining eligible depreciable value as an instant deduction. 

Claiming scrapping on previously-owned assets is possible for businesses as commercial property isn’t affected by 2017 legislation changes. These changes exclusively impact residential property investors and disallow them from claiming depreciation on any second-hand plant and equipment assets like carpets, dishwashers and window coverings. 

How does scrapping affect a business?  

The only way scrapping affects a business is by helping the business owner pay less tax. Just like general depreciation, scrapped depreciation works as a tax deduction that decreases taxable income, meaning the business owner pays less tax. 

BMT Tax Depreciation has been helping businesses across all commercial industries claim the maximum depreciation deductions for over twenty years. The team prepares comprehensive depreciation schedules to ensure that scrapping is possible no matter when the business owner decides to dispose of old assets. 

To learn more about scrapping and how it can help you, contact BMT on 1300 728 726 or Request a Quote. 

The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters. 

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