Authors Note: Scrapping schedules have been impacted by legislation changes and in most cases will not suit your scenario. See more information here – Scrapping Schedules – Why they’re a thing of the past.
The term ‘scrapping schedule’ is thrown about a lot these days, and to be honest, it’s a term that is more confusing than helpful. To begin with, we should look at what scrapping actually is. In simple terms, scrapping is the process of throwing away an asset that has reached the end of its physical life. The benefit from a depreciation perspective is that the remaining written down value of the asset can be claimed at 100%.
There are a few rules which apply, as referenced below, but the question I want to ask is what does a scrapping schedule do that a depreciation schedule doesn’t? In short, nothing! A depreciation schedule provides you with the residual value of an asset as at the time of purchase.
A scrapping schedule will do exactly the same thing, which begs the question ‘Why does it need its own name?”. What’s different is the way in which the schedule is used. A depreciation schedule will provide the residual or opening values of assets, in order for depreciation to be claimed as at the prescribed percentage. A scrapping schedule is used with a view to calculating the residual value as at the time the assets are being thrown away. However, you can do that with both schedules.
We’re getting terribly boring and technical here, but let’s say you’ve bought a property with some carpet and after renting the property for 6 months, you’re wanting to throw the carpet away. If the scrapping schedule shows the carpet was worth $1,500 when you purchased the property, to claim the correct figure when the carpet is thrown away, you need to calculate the decline in value of the carpet whilst it was being used for 6 months. It’s an easy thing for a quantity surveyor or accountant to do, but you must have the opening value as at the settlement date of the property. This is why you NEED a depreciation schedule to claim scrapping. No mater whether you call it a scrapping schedule or a depreciation schedule, both are going to give you the information you need to write-off the asset. A ‘scrapping schedule’ is likely to just be a schedule on the old assets, then the new assets are captured in a ‘depreciation schedule’. The reality is that one schedule can be prepared achieving both things. It’s important that the inspection be completed prior to the removal of the assets, but if the new assets come with shiny receipts (as they most always do), there’s no need for a quantity surveyor to revisit the property, as in most cases there’s no estimating required.
To understand the rules, you can visit our blog here, which includes a detailed analysis of what scrapping and the new assets will mean to your total deductions. https://www.mcgqs.com.au/blog/scrapping-tax-depreciation-writing-off-an-asset/