If a profit-making enterprise purchases a building for expansion and then demolishes and rebuilds it, the purchase price of the old building and the cost of demolition should be included in the cost of the new building.

If a profit-making enterprise purchases new land and old buildings on the land for expansion, and if they do not meet business needs and the old buildings on the newly purchased land are demolished and rebuilt, the purchase price of the old buildings and the demolition costs should be included in the cost of the new building.

The Kaohsiung National Taxation Bureau of the Ministry of Finance stated that a certain company recorded a huge scrapping loss of NT$5 million in its accounts, which seemed abnormal. After the company explained, it was because the newly purchased old building was demolished to rebuild a new house, and the account recorded the purchase price of the old building of NT$4 million and the demolition cost of NT$1 million, and reported the scrapping loss of fixed assets for that year.

The bureau further explained that if a profit-making enterprise's fixed assets used for business purposes are destroyed or abandoned before reaching the prescribed useful life due to a specific accident, it may, in accordance with Article 57 of the Income Tax Act, provide tangible documentary evidence to list the unreduced balance as a loss for that year. If a profit-making enterprise purchases land and old buildings and then demolishes and rebuilds them before they are put into use, the purchase price of the old buildings and related costs such as demolition fees cannot be reported as fixed asset scrapping losses because they have never been used for business purposes, and should be included in the cost of the newly built buildings. In the above case, after approval by the State Taxation Bureau, the company's purchase price of RMB 4 million and demolition fees of RMB 1 million, totaling RMB 5 million, were transferred to the cost of newly built houses and depreciated annually. The company's losses from the scrapping of fixed assets reported in that year were then deducted and additional taxes were levied.

The bureau reminds that when profit-making businesses scrap and dismantle fixed assets and record various expenses and losses, they should pay attention to relevant tax laws to avoid misreporting expense items. If you have any related questions, please call the toll-free service number 0800-000-321 for consultation, or go to the bureau’s website (https://www.ntbk.gov.tw) and use the National Taxation Bureau’s smart customer service “National Taxation Assistant” for online inquiries.

Provided by: Ministry of Finance, Kaohsiung National Taxation Bureau, Zuoying Taxation Office
Contact Person: Song Yaping, Section Chief Tel: (07) 5874709 ext. 6930
Written by: Liu Caimin Contact number: (07) 5874709 ext. 6933