A list of tax questions

Hi, I'm undertaking my own tax return using eTax and there's a few questions I have that are still not quite clear. Would love it if people could contribute and/or clarify my answers. Maybe even add your own questions.

Q. Loan establishment costs
A. Deductible over 5 years (includes LMI, Stamp duty on mortgage, establishment fees, Settlement costs?)

Q. Fixed loan break costs from IP refinance
A. 100% deductible in the year that they are charged.

Q. Loan Discharge fees from IP refinance (Deferred establishment costs, settlement attendance etc)
A. Deductible

Q. Government Stamp Duty
A. Non-deductible

Q. Interest incurred on Stamp Duty
A. Deductible

Q. Interest incurred on Loan establishment costs (LMI etc)
A. Deductible

Q. Renovations that are not repairs, e.g. replacing carpets with floorboards.
A. Non-deductible capital expenses (Added to house cost base, CGT implications when sold)

Q. Structural renovations, e.g. a new Bedrooms, Bathrooms, Kitchens, Garage, pergola
A. Depreciated at 2.5% over 40 years?

Q. Subdivision costs on existing IP (surveyor fees, application fees, council fees)
A. All costs fully deductible.

A stretch perhaps?
Q. Interest incurred on PPOR as a result of using funds from offset account for IP
A. ?

There may be more but that's a good start.
Cheers,
Gooram
 
A stretch perhaps?
Q. Interest incurred on PPOR as a result of using funds from offset account for IP
A. Tell em their dreaming ! (quote from the Castle)
It is not a loan for investment purposes you are using your offset account savings for IP. The interest incurred on PPOR is interest incurred for private use only.


Q. Renovations that are not repairs, e.g. replacing carpets with floorboards.
A. Non-deductible capital expenses
Depends !
(Added to house cost base, CGT implications when sold)

If you have done an improvement for the purposes of renting out the property then these might be able to be claimed as depreciation but over the effective life of the item. Employ a quantity surveyor and they will work out the whole house fittings and effective lives of each item.

However what you gave as (Added to house cost base, CGT implications when sold) occurs if you are not renting out the property.

Some repairs can be improvements ! grey area of tax law.
If you replace something in its entirety it is an improvement
If you replace something in a better state than you originally purchased the property its an improvement.
 
Some repairs can be improvements ! grey area of tax law.
If you replace something in its entirety it is an improvement
If you replace something in a better state than you originally purchased the property its an improvement.

So from my interpetation of the ATO articles, the labour cost of improvements is a capital works deduction (add to cost base of home and claim at 2.5% over 40 years?) and the materials for an improvement are deductible according to the decline in value rules.

Is that right?
 
So from my interpetation of the ATO articles, the labour cost of improvements is a capital works deduction (add to cost base of home and claim at 2.5% over 40 years?) and the materials for an improvement are deductible according to the decline in value rules.
Is that right?

I presume by "labour" and "materials" you mean labour as the cost for someone to install/build the item and materials is the actual raw materials used. If so, then the answer is no. Both the labour and materials combine into the cost of that item - you can't separate them.

For instance, if you spend $800 on a new electric hot water system and get someone to install it for $300, the total cost is $1,100. As that is a depreciable item, it is written off over its life of 12 years. If the same costs were to install a window, then the entire cost is capital works and written off over 40 years.

Note, if you install the item yourself you can't include any costs related to your time.
 
that makes a lot more sense :)

I went and re-read the ato article and yep, with clarity, it backs up what you are saying here.

Thanks
 
Q. Loan establishment costs
A. Deductible over 5 years (includes LMI, Stamp duty on mortgage, establishment fees, Settlement costs?)

Q. Fixed loan break costs from IP refinance
A. 100% deductible in the year that they are charged.

My 2c

If it's say year three and you're breaking the previous loan, you have two years that you can claim immediately in the current tax year. You then start your five years again as per Q1 with the new loan
 
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Cont....
 
A stretch perhaps?
Q. Interest incurred on PPOR as a result of using funds from offset account for IP
A. ?

I'm doing the same but in reverse.

The place that is currently my PPOR is 80% mortgaged on an interest only loan. I have funds equivalent to another 50% of the property's value sitting in an offset account.

It is possible my partner and I will buy a PPOR together sometime over the next 2 years using the funds in the offset account at which time my current PPOR will become an IP

If that happens I'm expecting to get a full deduction on the 80% borrowings on the IP notwithstanding that the interest cost will be higher after taking out the funds currently sitting in the Offset account.

I purposely structured my finances this way so as not to end up with too much equity in my current place if I bought another PPOR down the track

To do it the other way though, where you withdraw funds from a PPOR offset account to buy an IP, I'd say you won't get a deduction on teh additioanl PPOR interest cost . You're not using borrowed funds to buy the income producing asset, you're simply foregoing a reduced interest cost by employing your own funds for investment purposes.
 
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