a quick question - turning PPOR to IP

[jsoe]

Hi,
We are turning our PPOR unit to an IP and moving out to another house we just bought. We're thinking of replacing carpets and a few other minor reno in the unit before getting tenants in. What's the smartest/tax efficient way to do this?
My husband is saying he wants to wait till the first of July (new financial year) before spending anything on the unit so it can be claim it back by the next financial year end? Is it correct?
Thanks!

 

[vaughan]

Any maintenance or repair work done BEFORE the property gets the first tenants is considered INITIAL REPAIRS are is not immediately deductible. Instead the costs are added to the capital and reduce the capital gains tax. So it won't be "deductible" until the property is sold.

Replacing carpets and a minor reno are improvements and are not immediately deductible anyway, these too would be capital costs.

You can however depreciate the new carpet and renovations -- and other capital depending on its age -- and this depreciation would be deductible.

Best read the ATO web site for information about renting and what can be claimed as expenses and deductions. Especially take note of the difference between repairs, maintenance, and improvements.

 

[vaughan]

Hi,
We are turning our PPOR unit to an IP and moving out to another house we just bought.

Only one property can be your PPOR and get the capital gains tax exemption. Consider which property you'll nominate as your PPOR.

You can rent out your current PPOR for up to 6 years and keep the CGT exemption on it, but you cannot claim the other house as your PPOR and be exempt for that at the same time. It'll have to be one or the other.

 

[monalisa]

Only one property can be your PPOR and get the capital gains tax exemption. Consider which property you'll nominate as your PPOR.

You can rent out your current PPOR for up to 6 years and keep the CGT exemption on it, but you cannot claim the other house as your PPOR and be exempt for that at the same time. It'll have to be one or the other.

You do not make a decision about which property is your PPOR now, you make this 'election' at the time you sell one of the properties, and it is reflected in the way you prepare your income tax return for the year in which you dispose the property.

For there to be CGT exemption, the time period is 6 months, i.e. you have to sell the property within 6 months - 6 year absence rule applies if you are not purchasing another PPOR, for example, renting or heading overseas.

Please also get a valuation of your current PPOR - as this valuation will be handy when/if you sell this property, as this will form the 'cost base' with respect to which the capital gain/loss will be calculated.

Additionally, the rate of capital works is 2.5% p.a. over a 40 year period. You may wish to hold of on doing any reno's now - tenant the property and six to 12 months down the track do the reno's - so at least you will be able to either deduct outright or claim depreciation (which is much more accelerated).

I'd also suggest you consult an accountant.

 

[marg4000]

The smartest way is to do the renos now.

You will be able to depreciate new items. Repairs are only deductible to bring a property back to the condition it was in when first rented, and even then conditions apply.

This way you should get maximum rent.
Marg

 

[monalisa]

Agreed with Marg... worthwhile checking if the renovations add a considerable amount to weekly rent compared to if rented in current condition.

 

[jsoe]

Thank you so much for all the advices. We'll book in with an appointment. I see it's a mine field out there.
At the moment, we'll definitely change the carpets though as current one is quite old and the new one will result in higher rent return. Thank you all.