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Depreciation recovered on sale of a building

This adjustment applies to if you have sold a building you claimed depreciation on in the income years before 2004.

If you sold a building you had claimed depreciation on or before 2004

You may need to adjust your income for Working for Families Tax Credits (WfFTC) if you sell a building that was used for a business or rental, and have included the depreciation recovered in your taxable income.

For 2003 and earlier years, you were:

  • not allowed to claim depreciation on buildings as a deduction in your income for WfFTC, and
  • not required to include any depreciation recovered on the sale of a building as WfFTC income.

You can exclude from your income for calculating your WfFTC entitlements any depreciation recovered from the sale of a building that you claimed depreciation on in 2003 and earlier years.

If your business was running at a loss before 2004

You will need to make an adjustment unless the business income was in a loss (eg, not included in the income for WfFTC) in the year the depreciation was claimed.

If you claimed depreciation on a building between 2004 and 2011

Depreciation on buildings was allowed as a deduction from income for WfFTC purposes from 2004 to 2011. This means you include the recovery of the depreciation claimed as income.

In the examples we have only shown two years to demonstrate the overall affect.

Example 1 - Building sold in 2015

Income in 2003 

business income
$27,300
less depreciation claimed on a
building
$2,300
business income on IR3 (after
$2,300 deduction for depreciation)
$25,000

Income in 2004

business income
$25,000
less depreciation claimed on a
building
$2,100
business income on IR3 (after
$2,100 deduction for depreciation)
$25,000

Income in 2015 - when adjustments for depreciation were made in 2003 and earlier years

Year Depreciation claimed Adjustment made in year
2003
$2,300
$2,300
2004
$2,100
$0
business income from IR3 return (includes $4,400 depreciation recovered when building sold)
$29,400
less depreciation recovery (claimed in 2003).
The $2,100 claimed in 2004 is not deducted here, because it was not added back in 2004
$2,300
Income for WfFTC  
$27,100

 

Example 2

Ben has a commercial rental property that he decides to sell. His taxable income for the 2015 year is $250,000. The total depreciation recovered from the sale is $100,000.

Ben claimed depreciation of $60,000 in the 2003 and earlier tax years and $40,000 in the 2004 to 2011 tax years.

Ben should reduce his income for WfFTC for the year ending 31 March 2015 by $60,000.