can he claim both renovations on tax???

[Francine]

I would be grateful if anyone can assist with this query.

a friend of mine bought 2 units in different locations. unit one he lives in and unit two he had letted out for the last 10 years since he bought it when it was new.

now he has asked the tenant to leave unit two, and he wants to renovate it, well at least put new flooring or carpet, paint and air con, and fix the garden and move into it . probably also at some stage change the garage into another room and put a carport and maybe put an extra toilet maybe spruce up a few bits in the kitchen and develop a few strorage places .
a

nd unit two he wants to then do the same the floors or carpet, paint and air con, and then let that out.

how can he find out if he will be able to claim the tax on both of the

renovations. one if repairs after a long term tenant and one is repairs in

order to let out.

Paula.

 

[craig73]

My understanding is that you can only depreciate renovations for rentals. So if he renovates both and moves into unit one and rents out unit two, he can only depreciate the renovations carried out on unit two. I don't think what you described qualifies as repairs.

 

[depreciator]

Paula,
If he rented out a unit for ten years, anything he spends on fixing damage done during that ten years e.g. painting, he should be able to claim as 'repairs'. Naturally, this does not include 'improvements' he makes after he moves in to the unit. He will need to talk to his accountant about what constitutes 'repairs' and what constitutes 'improvements'.
With the place that he has lived in for same time and is now going to rent out, the fact that he has lived there means that he has some latitude. Work he does shortly after tenanting the place out would not be classed as 'initial repairs' and he may be able to expense it. Of course, this depends on the nature of this work i.e. it can't be 'improvements'. Naturally, if he is adding things like an air con, he will depreciate this.
It can be a little bit grey some of this. I'm happy to have a chat with him if he calls me next week.
Scott

 

[Francine]

thanks

thanks so much for that.so bottom line is ? is it that if he is repairing after letting and repairing in order to let that yes alot would be claimable in both properties?

yes it is repairs after damage of tenants that is needing the paint and carpet in unit one so thats great if he can claim it

the air con in unit 2 is actually not a total improvement as there was one but it was never replaced when it broke a few years back.

i didnt understand what this meant
' he has some latitude. Work he does shortly after tenanting the place out would not be classed as 'initial repairs' and he may be able to expense it. '

please could you tell me what you mean by 'he has some latitude,' and please could you tell me what you mean by the rest of the quote'

thanks for that that sounds promising.

paula.

 

[depreciator]

the air con in unit 2 is actually not a total improvement as there was one but it was never replaced when it broke a few years back.

Replacing an entire item is an improvement. It's not a repair.

please could you tell me what you mean by 'he has some latitude,' and please could you tell me what you mean by the rest of the quote'

As I said:

It can be a little bit grey some of this. I'm happy to have a chat with him if he calls me next week.

TR 97/23 says in part:

76. In appropriate circumstances, expenditure for repairs can qualify as a deduction even though the property has previously been held, etc., by the taxpayer for non-income purposes. This situation is different from an initial repair done to newly purchased or newly leased property, where the repair expenditure is capital expenditure.

77. A deduction is allowable under section 25-10 if, when the repair expenditure is incurred in a year of income, the property is held, etc., by a taxpayer for income purposes:

(a)
even though the property has previously been held, etc., by the taxpayer for non-income purposes; and
(b)
even though some or all of the defects, damage or deterioration arise from, or are attributable to, the taxpayer's holding, etc., of the property before its holding, etc., for income purposes; and
(c)
provided that the repair expenditure is not capital expenditure.

 

[Francine]

wow thanks so much thats very helpful

wow thanks so much that is very helpful. I will pass that all onto my friend after reading it carefull.

Paula.