Sale of a Depreciable Asset – Tax Implications

Any sale of a capital asset at a profit may have both income tax and capital gains tax ramifications. The introduction of CGT was to broaden the tax base in Fiji and to bring equity in the tax system so that both the ordinary and capital incomes are taxed appropriately. The incorporation of CGT into the income tax act came with some fundamental changes, which was later amended as part of 2020/2021 national budget. As a means to streamline the CGT administration, the capital assets definition was amended to include depreciable assets.

Prior to 1st August 2020, a depreciable asset did not qualify as a capital asset and any disposal of a depreciable asset would be subject to Income Tax if depreciation was claimed.

The current rules are that a depreciable asset qualifies as a capital asset.

Section 34 of the ITA 2015 provides rules for the taxation of depreciable assets, which are applicable in situations where real property is disposed with a building. Taxpayers need to consider the following determinations.

If the sale or consideration exceeds written down value, depreciation claimed on the asset up to the amount of the excess is added back to assessable income of the taxpayer.

Any residual excess is subject to Capital Gains Tax under Part 3 of the Income Tax Act 2015.

If the sale results in a loss, that loss is allowed as a deduction against gross income of the taxpayer.

For further taxation advice contact Atnesh on email address; [email protected]

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