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When you cease a business, sell or dispose of a business asset you must make an adjustment in your end of year tax return to account for the gain or loss. A gain is included as gross income and a loss (except buildings) as an allowable deduction.
From the 2011-12 income year, many buildings can no longer be depreciated. Despite this depreciation recovery still applies for those buildings when they are disposed of for greater than their adjusted tax value (book value). This applies regardless of when the building was acquired or when the building was disposed of.
Where an asset ceases to be used in a business, or if you cease business and don't sell your business assets immediately or if they are kept for private use, the loss or gain must be accounted for using the market value of the assets as at the beginning of the next income year.
You will have to make an adjustment in your income tax return for the year after the business ceased or the asset changed use, even if the loss or gain is not realised until a later income year.
Selling an asset
When you sell or dispose of an asset (other than a pooled asset) for a different amount from its adjusted tax value, you must make an adjustment in your end of year tax return to account for the loss or gain. The adjustment is generally made in the year you sell or dispose of an asset except when the business has ceased (see above).
You cannot claim a deduction for depreciation in the year that you dispose of an asset, except in the case of buildings.
|Computer purchased for||$2,500.00|
|Deemed depreciation claimed||$1,000.00|
|Adjusted tax value||$1,500.00|
|Computer sold for||$1,900.00|
The $400.00 is depreciation recovered and must be included in your income tax return as income in the tax year the computer was sold.
If the asset has been used for both business and non-business purposes, you must apportion any loss or gain on disposal between business and non-business use.
For more information see the Depreciation guide IR 260 (Part 5 - Adjustments and Disposals) or the online depreciation calculator.