Sale of a Depreciable Asset – Tax Implications
Prior to 1st August 2020, a depreciable asset did not qualify as a capital asset and any disposal of a depreciable asset would be subject to Income Tax if depreciation was claimed.
The current rules are that a depreciable asset qualifies as a capital asset.
Section 34 of the ITA 2015 provides rules for the taxation of depreciable assets, which are applicable in situations where real property is disposed with a building. Taxpayers need to consider the following determinations.
If the sale or consideration exceeds written down value, depreciation claimed on the asset up to the amount of the excess is added back to assessable income of the taxpayer.
Any residual excess is subject to Capital Gains Tax under Part 3 of the Income Tax Act 2015.
If the sale results in a loss, that loss is allowed as a deduction against gross income of the taxpayer.
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