Scrapping assets before you sell
One of the most powerful yet underused tax strategies available to property investors is scrapping — writing off the remaining depreciation value of assets that are removed, demolished, or decommissioned before or at the time of sale.
What is scrapping?
Every asset in your depreciation schedule has a "written-down value" — the remaining cost that has not yet been depreciated. When you remove that asset from the property (rather than selling it), you are entitled to claim the entire remaining written-down value as an immediate deduction.
Example:
- Carpet installed 8 years ago with a $6,000 original cost
- After 8 years of depreciation, written-down value remaining: $1,400
- The carpet is ripped out before sale: immediate $1,400 deduction
When does scrapping apply before sale?
Scenario 1 — Vendor renovation before sale: If you renovate the property to prepare it for sale and old assets are removed in the process, those assets can be scrapped. The scrapping deduction is available in the tax year the assets are destroyed or discarded.
Scenario 2 — Buyer intends to demolish or renovate: Some investors negotiate the right to write off assets based on a confirmed intention to demolish or renovate by the incoming buyer. However, the ATO requires the assets to actually be disposed of — not just intended to be removed. You need evidence that the assets have been physically removed or destroyed.
Scenario 3 — Demolition at settlement: If the property is partially or fully demolished at or around settlement, all assets in the schedule that are demolished can be scrapped at that time.
What you need for a scrapping deduction
Division 43 and scrapping
Division 43 capital works (the building structure) cannot be scrapped in the same way as Division 40 assets. However, if you demolish the building, any undeducted construction expenditure can be claimed as a deduction in the year of demolition under specific provisions.
Get your depreciation schedule reviewed
Ask your quantity surveyor to review your schedule before the sale and identify all assets with significant remaining book value. The scrapping calculation can then be finalised once the removal or demolition is confirmed.