Can i claim new kitchen as tax expense?

[TEG]

My tenants have moved out of my IP, and the kitchen needs to be renovated. Itś original condition (30 yr old) and I want to rip it out and put in a brand new one. I will get the walls painted in the unit, and also put in flooring in the kitchen.

The walls in the bathroom, bedroom, and laundry are very dirty and appear to have very large mould areas on the walls (the walls very perfect condition before renting the unit)

Can I claim any of this work as an expense on my tax return? Does the tradeseman have to indicate that it was damaged (i.e kitchen in need of major repair, etc), in order to legitimately claim this work as a tax expense?

 

[Terryw]

There could be 3 ways to claim:
1. Outright as a repair
2. Depreciate as part of building
3. Depreciate as a fitting.

Which one you use will depend on the part involved and the situation I think.

 

[wylie]

If you rip the 30 year old kitchen out, you couldn't claim the new one as a "repair". It would have to a capital cost and be depreciated.

If you do "repair" part of the kitchen, that is different.

I would think you could claim the cleaning of mould and repainting as a "repair" because you are bring them back to the standard they were when the place was rented.

Check all this with your accountant. He is the one who will be doing your return.

 

[Propertunity]

New kitchen will be depreciated only as wylie said.
Same with flooring in the kitchen.

The only way something becomes a repair is if it fixes something to the same standard. It could not end up being an "improvement".
i.e. you could replace a damaged kitchen benchtop with a similar new benchtop - that would be a repair. But if the old top was was laminex and the new one was granite - then that is an improvement and would need to be depreciated.
Either way, after 30 years, the old one needs a total replacement IMO.

Paint may be a repair.

 

[Zeddy]

So if I had say a shadecloth fabric over timber rafters and columns, and replaced that with a shadecloth hung from steel columns, could I not say that it's a repair?

It's not going back to the exact same condition, but it fulfills the same function and a large percentage of the materials (ie the shadecloth fabric) is the same type.

Sorry if I'm hijacking the thread, but it seems quite similar.

 

[Terryw]

So if I had say a shadecloth fabric over timber rafters and columns, and replaced that with a shadecloth hung from steel columns, could I not say that it's a repair?

It's not going back to the exact same condition, but it fulfills the same function and a large percentage of the materials (ie the shadecloth fabric) is the same type.

Sorry if I'm hijacking the thread, but it seems quite similar.

The steel columns may be an improvement.

 

[TEG]

There could be 3 ways to claim:
1. Outright as a repair
2. Depreciate as part of building
3. Depreciate as a fitting.

Which one you use will depend on the part involved and the situation I think.

When I bought the unit in 2007, I did a partial renovation (paint, new gyprock ceilings and downlights). I got a deprecitation report after that initial reno in 2007.

If i do the new kitchen and new flooring and paint unit now, do you think it would be worthwhile to get another depreciation report done, or should I just not bother. (I expect to spend around 7K for this reno).

Thanks

 

[Propertunity]

When I bought the unit in 2007, I did a partial renovation (paint, new gyprock ceilings and downlights). I got a deprecitation report after that initial reno in 2007.

If i do the new kitchen and new flooring and paint unit now, do you think it would be worthwhile to get another depreciation report done, or should I just not bother. (I expect to spend around 7K for this reno).

Thanks

Just contact the QS firm you engaged to do the depreciation schedule in 2007 and get them to update it with the new stuff (should be minimal charge for this).
Alternatively, just give the new stuff paperwork to your accountant and he/she can use them to make the adjustments in your tax return.

 

[TEG]

New kitchen will be depreciated only as wylie said.
Same with flooring in the kitchen.

The only way something becomes a repair is if it fixes something to the same standard. It could not end up being an "improvement".
i.e. you could replace a damaged kitchen benchtop with a similar new benchtop - that would be a repair. But if the old top was was laminex and the new one was granite - then that is an improvement and would need to be depreciated.
Either way, after 30 years, the old one needs a total replacement IMO.

Paint may be a repair.

If I claim something as a 'repair', do I need proof that it's in fact a repair, and not an improvement, (i,e before and after pics? quote from kitchen installer quoting 'repair' to benchtop, etc?).. Would anyone even know or check whether the work was a repair or an improvement?

Thanks

 

[wylie]

If you plan to claim the cost of a new kitchen and call it a repair, I think you are risking ATO noticing that.

 

[TEG]

If you plan to claim the cost of a new kitchen and call it a repair, I think you are risking ATO noticing that.

yep, i see your point.. better not risk it.


Thanks everyone for your replies.

 

[quoll]

Can I claim any of this work as an expense on my tax return?

You can claim what ever you want, if you ever get audited the tax man might have a different view and make you pay some cash back to them.

 

[Aaron_C]

If I claim something as a 'repair', do I need proof that it's in fact a repair, and not an improvement, (i,e before and after pics? quote from kitchen installer quoting 'repair' to benchtop, etc?).. Would anyone even know or check whether the work was a repair or an improvement?

Thanks

I seriously doubt they are going to check every single item to differentiate between a repair and a capital expense. And if they ask, you could always lie to them.

 

[Propertunity]

I seriously doubt they are going to check every single item to differentiate between a repair and a capital expense.

It is alll "self assessment" and has been for years but you are still liable for what you sign off on in a tax return.

And if they ask, you could always lie to them.

You cannot seriously be recommending this as a possible course of action??

I think the ATO has been lied to before - it does not seem to make much difference - if you are found to have done so, you can pay it all back with penalties or share a cell with a big bloke who wants to call you his Mrs.

 

[Aaron_C]

I think the ATO has been lied to before - it does not seem to make much difference - if you are found to have done so, you can pay it all back with penalties or share a cell with a big bloke who wants to call you his Mrs.

They are lied to all the time...I am not advocating it, just stating the facts. The ATO simply doesn't have the time, resources or people to chase up every little detail in every person's individual, company and trust tax return. They target certain individuals with a certain asset base to check that proper paperwork etc has been done with regards to use of funds etc.

Honestly, they are not going to care if you claimed the paint you bought as an IP deduction if part of it was used to paint your own house. How would they know? Would they care? Put things in perspective please...

 

[Propertunity]

Put things in perspective please...

My perspective on this, is that this is a public forum and you are a professional (I assume). You simply can't advise people to "lie to the ATO" as a possible course of action if they are audited.

Maybe I'm out of step with society?? .....but so be it.

Tinkering on the edges to save a few measly dollars is in my view missing the main game. We buy houses. They get CG. We refi or sell down to get cash. There are so many legitimate ways to make money in this county, that I just don't see the point in defrauding the ATO as being in any way necessay. Ultimately you are just ripping off other Australian taxpayers.

 

[Aaron_C]

Once again, I am not telling people to lie. I am, however, illuminating the reality of the self-assessment system. We can take the high moral ground and say you are defrauding other taxpayers etc etc but that doesn't help the individual.

And I think that those 'few measly dollars' are better in your pocket than in the government's.

 

[battler]

you could always lie to them.

Once again, I am not telling people to lie.

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