• #### Purchase and valuation of second-hand assets

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 asset you can generally claim a deduction based on the cost of the asset to you.

Where you purchase a rental property, the most effective means of establishing your cost is to have the separate value of depreciating assets, calculated on an arm's length basis, specified in the sale agreement. If separate values for depreciating assets 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.

Generally, independent valuations that establish reasonable values for depreciating assets 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 asset compared to the total purchase price of the property.

You should use Worksheet 1-depreciating assets and Worksheet 2-low-value pool to help you work out your deductions for decline in value of depreciating assets. These worksheets are contained in the publication Guide to depreciating assets.

Example

In this example, the Hitchmans bought the property part way through the year-on 20 July 2001. Depreciating assets sold with the property were assigned separate values in the purchase contract that reflected their respective arm's length values at the time. Therefore the amounts shown in the contract can be used by the Hitchmans as the opening adjustable values of the assets. They can claim a deduction for decline in value for 346 days out of the 365 in the 2001-02 income year. The deduction for each asset is calculated using the diminishing value method as shown below:

Description

Cost

Part-year claim

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

Deduction for decline in value

Furniture

\$2,000

\$2,000

346 ÷ 365

150% ÷ 15

\$190

\$1,810

Carpets

\$1,200

\$1,200

346 ÷ 365

150% ÷ 10

\$171

\$1,029

Curtains

\$1,000

\$1,000

346 ÷ 365

150% ÷ 7

\$203

\$797 (see note)

Totals

\$4,200

\$4,200

na

na

\$564

\$3,636

Note: As the closing adjustable value of the curtains is \$1,000 or less, the Hitchmans may choose to transfer this asset to the low-value pool for the year ended 30 June 2003.

End of example

Example

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

Assets held before 1 July 2001

Total adjustable value of pool at 30 June 2001

Low-value pool rate

Deduction for decline in value

Various

\$1,679

37.5%

\$630

Assets purchased 1 July 2001 – 30 June 2002

Purchase price

Low-value pool rate

Deduction for decline in value

Television set (11/11/2001)

\$747

-

-

Gas heater (28/2/2002)

\$303

-

-

Totals

\$1,050

18.75%

\$197

Total deduction for year ended 30 June 2002

-

-

\$827

Value of low-value pool at 30 June 2002:

1,679 - 630 = \$1, 049

1,050 - 197 = \$853

= \$1,902

End of example