Three Essential Considerations for Disposing of Fixed Assets
When a business enterprise disposes of fixed assets after the full depreciation period, there are three key points to be aware of. First, if the proceeds from the sale of scrap materials are less than the residual value, the shortfall should be recorded as a loss. Second, if the proceeds exceed the residual value, the excess should be recognized as income. Third, although there is no need to report to the tax bureau, if a loss is to be recognized, supporting documentation should be provided.
According to the Income Tax Act, if a fixed asset is destroyed or disposed of after reaching its full depreciation period, and the income from the sale of scrap materials is less than the reserved residual value, the shortfall can be recorded as a loss in the current year. If the income exceeds the residual value, the excess should be recognized as income in the current year.
The Tax Bureau reminds that when a business plans to dispose of a fixed asset after its useful life has ended, there is no need to report to the tax authority. However, the business should provide evidence of the asset’s disposal in order to recognize the loss from the disposal in the current year.
