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  • Purchase and valuation of second-hand items

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    If you purchase a second-hand item of plant you can generally claim a depreciation deduction based on the cost of the item to you.

    Where you purchase a rental property, the most effective means of establishing your cost of plant is to have the separate value of depreciable items, calculated on an arm's length basis, specified in the sale agreement. If separate values for depreciable items of plant are not included in the sale agreement for your rental property when you purchase it, then you may be required to demonstrate the basis of your valuation of the depreciable items.

    Generally, independent valuations that establish reasonable values for depreciable items of plant satisfy ATO requirements. In the absence of an independent valuation, you may need to demonstrate that your estimate provided a reasonable value. Considerations would include the market value of the plant itself compared to the total purchase price of the property.

    Worksheets for calculating depreciation and low-value pools are contained in the publication Guide to Depreciation.

    Example

    In this example, the Johnsons bought the property part way through the year-on 20 July 2000. The opening undeducted costs are taken to be equal to the contract puchase prices that the Johnsons paid for the items at the time the property was acquired. They are entitled to a depreciation deduction for 346 days out of the 365 in the 2000-01 income year. The depreciation deduction for each item is calculated using the diminishing value method as show below:

    Description

    Original cost

    Opening undeducted cost

    Part-year claim

    150% divided by effective life (yrs) from Guide to depreciation

    Depreciation deduction

    Closing
    undeducted cost

    Furniture

    $2000

    $2000

    346
    365

    150%
    15

    $190

    $1810

    Carpets

    $1200

    $1200

    346
    365

    150%
    10

    $171

    $1029

    Curtains

    $1000

    $1000

    346
    365

    150%
    7

    $203

    $797*

    Totals

    $4200

    $4200

       

    $564

    $3636

    *Note:As the closing undeducted cost of the curtains is $1000 or less, the Johnsons may choose to transfer this plant to the low-value pool for the year ended 30 June 2002.

    Example

    In this example, the Johnsons allocated various items of plant into a low-value pool. The low-value pool comprised plant that had an undeducted cost of less than $1000 (because of previous depreciation claims using the diminishing value method) and some new plant that they had purchased during the year.

    Plant held before
    1 July 2000

    Undeducted cost at 30 June 2000

    Pooled
    depreciation
    rate

    Depreciation
    deduction

    Hot water system

    $486

       

    Refrigerator

    $389

       

    Stove

    $518

       

    Washing machine

    $286

       

    Totals

    $1679

    37.5%

    $630

    Plant purchased
    1 July 2000-30 June 2001

    Purchase
    price

       

    Television set
    (11/11/2000)

    $747

       

    Gas heater (28/2/2001)

    $303

       

    Totals

    $1050

    18.75%

    $197

    Total depreciation for year ended 30 June 2001

    $827

    Value of pool at 30 June 2001:

    1679 - 630

    = $1049

    1050 - 197

    = $853

     

    = $1902

    Last modified: 28 Jul 2003QC 16187