Can I revalue my asset to offset tax?

Josh asks:
(updated on Friday, September 30th 2011)

We have a rental property in an LAQC that was bought in 2007 and we had it valued just prior to the end of FY11 tax year at $30,000 lower than what we brought it for. Can I state a revaluation of asset in the FY11 tax return and offset the $30,000 against shareholders personal income? We have not been claiming depreciation. The next stage is with the LAQC laws changing we will be changing the ownership to a Partnership or LTC, so if the property is sold 5 years or so down the track and the property has increased $30,000 since the valuation, would we need to pay that tax back? Thanks.

Our Experts Answer:

Booking an unrealised revaluation or devaluation of an investment property does not give rise to a tax deduction. In an accounting sense it only impacts the equity section of the balance sheet. It's a pity you haven't been depreciating. Depreciating the building would have given you a hedge against this very outcome where the building has indeed depreciated.

Even if you realised the loss by selling the property a loss on disposal of the land and buildings is not deductible unless the company is associated with a builder, developer or subdivider or you can prove that the property was purchased by the company with an intention to resaleie if teh property was considered trading stock of a development activity.

Remember to make your LTC election before the 30 September deadline if you decide to go down that route but think carefully about the rental profit or loss equation rather than the movements in the value of the property when making your elective decision.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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