What Is A Scrapping Schedule And Why Should I Get One Done?
What is a scrapping schedule and why do you need one? In this article I am going to talk about what a scrapping schedule is, why you need one and then thirdly I’m going to talk about I’m going to talk about how you can go about getting one.
What is a scrapping schedule?
If you’re doing renovations or doing up your house you can use what is called a scrapping schedule and actually depreciate the things that you’re destroying.
Let’s say that you’re renovating your house and you’re going to rip up the carpets and you’re going to polish the floor boards that are underneath it. Instead of just ripping up that carpet and counting it as a loss you know and not doing anything with it what you can do is you can get a quantity surveyor to come in and to look at that carpet and to say okay that carpet is worth let’s say one thousand dollars for the entire house.
What you can then do is you can use that thousand dollars and depreciate that in one big hit so you can effectively have a one thousand dollar on paper loss because you’re pulling out a thousand dollars worth of value for the house. Learn more about investment property depreciation here.
You may be doing the renovations to add something better in but because you’re pulling out that thousand dollars you can actually count that as a loss in value and that’s what a scrapping schedule is.
It’s the loss in value of the things you’re destroying in the house when you’re doing a renovation or replacing it with something new.
Why do you need a scrapping schedule?
The scrapping schedule is an on paper loss we can actually use against our income from the property or against our income from our own work. This means we then get some tax back on that.
So let’s say that going back to the carpet example you ripped out a thousand dollars worth of carpet you yourself are paying 30% tax on the money that you earn, you are in that 30% tax bracket.
Of that $1,000 that you ripped out that you’re claiming as a loss well $300 of that you will get back in tax.
The bigger the renovation and the more things that you are ripping out the higher the scrapping schedule will be and the more value it will be.
So why do you need a scrapping schedule? Because the tax savings can be great!
A scrapping schedule can actually help you achieve positive cash flow after tax.
How to get your scrapping schedule done.
The easiest way to do it is to call up a quantity surveyor in your area. If you don’t know who they are then get on Google and Google “quantity surveyor” and then insert your suburb or insert your area or town and some will come up in Google or the Yellow Pages or whatever.
So you get them in ideally before you’ve done the renovations and before you’ve taken things out of your house and say “look here’s what I’m doing. I’m ripping out the carpet, I’m knocking down the kitchen, I’m taking out the shower in the bathroom and I’m stripping all of the lights out of the ceiling and replacing them with down lights.”
You tell then what you’re going to do and what you’re going to be throwing out and they will then calculate the value of that stuff.
If you’ve already done the renovations sometimes some quantity surveyors if you have photos of the original property with all of the old fixtures in with the old carpet in and everything they may be able to go off of that but they probably won’t be as accurate and they won’t be as willing to give you as much as possible if they are just looking at photos.
So get them in before you do the renovations, get them to organize a scrapping schedule for you and then when the renovations are done and tax time comes around then you can use that on your tax return. So that’s how you get it done.
I wouldn’t recommend doing it by yourself. I don’t know the laws around that either. I don’t know if you can do it yourself but I do recommend getting a professional to come in and do it.
It might cost you a couple of hundred of dollars to get it done but again if just the carpet is worth a thousand then the kitchen is going to be worth a couple of thousand and you’re easily going to make that back in tax savings.
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