Tax time - selling a fully depreciated asset?

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Forums › Finance and wealth management › Tax time - selling a fully depreciated asset?

rayonline

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#233277 8-Apr-2018 17:24

It's that time again. I don't have depreciated assets. Keep is simple for a small peanut like me. I am curious to know though. Some get cars and put it under their business. IRD says it is a 5yr useful life, ie a straight line depreciation of 21%.

What happens if someone buys a used car for $15,000 and 10yrs after (way more than 5yrs) sells it for $500? Do they need to report $500 as other income? The same would apply to smaller items right? A $1,000 computer and now might be worth $25 on Trademe ....

Cheers.

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#1991499 8-Apr-2018 17:24

Hmmmm. Here we go.

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UHD

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#1991505 8-Apr-2018 17:32

Your tax agent or a quick call to the IRD will answer this.

surfisup1000

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#1991595 8-Apr-2018 18:26

If you sell an asset for more than its book (ie, depreciated value) then you include the 'profit' as income.

In your example, if the car is depreciated to $0, and you sell for $500, then you include the $500 as 'income'.

Tax is largely commonsense really, you claimed $15000 as an expense, yet, after selling the car the actual cost of the car was $14500. So, in hindsight you should only have claimed $14500 as an expense. But, we can't predict the future, so the $500 income adjustment corrects this imbalance.

DaveB

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#1991675 8-Apr-2018 20:45

If you need to ask for advice about such things on Geekzone, you really should be talking to and asking a qualified accountant this question.

It's not as expensive as many think and can often save you thousands of $$$ in the long run.

rayonline

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#1991677 8-Apr-2018 20:50

It's not something I have. As a office contractor on standard wages I just keep them under 500 and don't need to depreciate. Was a curious post. The computer I am using was bought before I contracted so I never claimed it.

Edit.

On a yearly basis I don't have much expenses. It's the internet and the $20 monthly mobile phone plan (split between work/personal) and that's pretty much it, maybe some 10% allocated household expenses. I don't have a motor vehicle. Unless the computer or the phone breaks down I keep on using it. I didn't even purchase stationery, a diary, or a wall planner this year.

TheMantis

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#1991775 9-Apr-2018 07:21

UHD:

Your tax agent or a quick call to the IRD will answer this.

There's no such thing as a quick call to IRD.

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tdgeek

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#1991783 9-Apr-2018 07:39

rayonline:

It's not something I have. As a office contractor on standard wages I just keep them under 500 and don't need to depreciate. Was a curious post. The computer I am using was bought before I contracted so I never claimed it.

Edit.

On a yearly basis I don't have much expenses. It's the internet and the $20 monthly mobile phone plan (split between work/personal) and that's pretty much it, maybe some 10% allocated household expenses. I don't have a motor vehicle. Unless the computer or the phone breaks down I keep on using it. I didn't even purchase stationery, a diary, or a wall planner this year.

Office contractor on standard wages? You are a business or a wage earner.

rayonline

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#1991785 9-Apr-2018 07:45

tdgeek:
rayonline:

It's not something I have. As a office contractor on standard wages I just keep them under 500 and don't need to depreciate. Was a curious post. The computer I am using was bought before I contracted so I never claimed it.

Edit.

On a yearly basis I don't have much expenses. It's the internet and the $20 monthly mobile phone plan (split between work/personal) and that's pretty much it, maybe some 10% allocated household expenses. I don't have a motor vehicle. Unless the computer or the phone breaks down I keep on using it. I didn't even purchase stationery, a diary, or a wall planner this year.

Office contractor on standard wages? You are a business or a wage earner.

It's thru a employment agency. Payment is per hour. Have to do own taxes etc. I do charge for gst then I pay this to the ird. I don't turn up like a consultant I report to a boss who is a permanent paye employee.

tdgeek

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#1991788 9-Apr-2018 07:52

rayonline:
tdgeek:

rayonline:

It's not something I have. As a office contractor on standard wages I just keep them under 500 and don't need to depreciate. Was a curious post. The computer I am using was bought before I contracted so I never claimed it.

Edit.

On a yearly basis I don't have much expenses. It's the internet and the $20 monthly mobile phone plan (split between work/personal) and that's pretty much it, maybe some 10% allocated household expenses. I don't have a motor vehicle. Unless the computer or the phone breaks down I keep on using it. I didn't even purchase stationery, a diary, or a wall planner this year.

Office contractor on standard wages? You are a business or a wage earner.

It's thru a employment agency. Payment is per hour. Have to do own taxes etc. I do charge for gst then I pay this to the ird. I don't turn up like a consultant I report to a boss who is a permanent paye employee.

Sounds odd from an agency, but its not standard wages. If they pay you per hour, and don't deduct PAYE, then it's not wages. Plus if you charge them and add GST, its not standard wages.

kryptonjohn

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#1991802 9-Apr-2018 08:41

When you sell business assets, you are supposed to sell them for fair market value regardless of book value. Fair market value could be pretty low, just not ludicrous. It could be zero for some things such as 5 year old computers which you can fairly write off to zero. It costs nothing to take a car to Turners auctions to get a low estimate and then sell it to yourself for that.

JayADee

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#1991856 9-Apr-2018 09:34

What happens if you close down the business to retire? Can you just keep the fully depreciated asset or do you have to sell it?

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Geektastic

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#1991858 9-Apr-2018 09:36

If the book value is $500, you buy the asset out of the company at $500 then sell it as a private person for more of it's worth more.

tdgeek

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#1991859 9-Apr-2018 09:41

Geektastic: If the book value is $500, you buy the asset out of the company at $500 then sell it as a private person for more of it's worth more.

You mean tax evasion? Yes, you could do that. Thats already been recommended earlier in the thread

tdgeek

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#1991869 9-Apr-2018 09:54

JayADee: What happens if you close down the business to retire? Can you just keep the fully depreciated asset or do you have to sell it?

When you close a business, you liquidate it, i.e. turn everything to cash. This can and often does mean transferring assets from the Balance Sheet of the business to you. Either by payment or balance sheet journal entry, as end of the day, once that's all done the company will settle to its shareholders, which is you

kryptonjohn

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#1991870 9-Apr-2018 09:54

JayADee: What happens if you close down the business to retire? Can you just keep the fully depreciated asset or do you have to sell it?

The assets have to be still have to be disposed of and the cash left over after liabilities cleared disbursed to the shareholders. If the assets are worth good money you can't just write them off.

In practice I expect that this is flaunted.

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