Capital Works Deduction or Low Cost Pool?

Hello, I have a few questions about an investment property.

1. Can capital works items (eg Built-in robe, rainwater tank) be included in the low-cost pool if the cost is under $1000 or is that only for non-capital works assets?

2. If a rainwater is rusty and leaking would a replacement tank be considered a repair or would it be a capital work? (It is significantly rusting through in the top third and non-repairable)

3. Same as number two except for a stump (footing) that needs a wedge put in (as the downpipe just leaked on to the ground which has subsided a little). Is this repair or capital? If it was like it at the time of purchase prior to becoming a rental what is the ruling on that?

I have read the ATO literature on rental properties and I am not certain on the ruling.

Thanks in advance.

Bec
 
2. If a rainwater is rusty and leaking would a replacement tank be considered a repair or would it be a capital work? (It is significantly rusting through in the top third and non-repairable)
Bec

A non-repairable repair???? :confused:

Asked and answered in one.
 
Bec, the Low Value Pool applies to Assets e.g. Appliances, carpet, curtains etc.

A built-in robe is 'building'. Regardless of the cost, you claim it at 2.5%.

Re the tank. If you replace a whole item, it's not a 'repair'.

If te stumps had problems when you bought the place, any work you do to them would NOT be a repair. Roughly speaking, the ATO definition of a repair is to restore something to the condition it was in when you bought it.

There is a really good ATO publication called Guide to Rental Properties. It can be downloaded. Plenty of information written very clearly.

Scott
 
Thanks so much for your clear answer Scott. I drew the same conclusion as you had however my partner had another conclusion drawn.

Bec
 
Bec, the Low Value Pool applies to Assets e.g. Appliances, carpet, curtains etc.

A built-in robe is 'building'. Regardless of the cost, you claim it at 2.5%.

Re the tank. If you replace a whole item, it's not a 'repair'.

If te stumps had problems when you bought the place, any work you do to them would NOT be a repair. Roughly speaking, the ATO definition of a repair is to restore something to the condition it was in when you bought it.

There is a really good ATO publication called Guide to Rental Properties. It can be downloaded. Plenty of information written very clearly.

Scott

Could it be claimed as a repair if the non repairable item is replaced with a second hand item in similar condition to the old? Ie oven or dishwasher etc?

Cheers
 
If I was the ATO, I would say that seems perfectly reasonable and shows that you are sort of 'acting in the spirit of things' i.e. the 'vibe'.
I'm not sure what they would say. It's still a whole item being replaced so they would fall back on that.
 
Repair or Improvement

I'm not an accountant but there may be some basis for claiming this as a repair if the functionality has not significantly changed.

It is all in the intent and reasoning behind the issue, so check with your own accountant:cool:

Refer to http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR9723/nat/ato/00001

Extract from TR 97/23

Repair is distinct from improvement


44. The meaning of 'repair' or 'repairs' is considered in paragraphs 12 to 30 of this Ruling. In the case of a 'repair', broadly speaking, the work restores the efficiency of function of the property without changing its character. An 'improvement', on the other hand, provides a greater efficiency of function in the property - usually in some existing function. It involves bringing a thing or structure into a more valuable or desirable form, state or condition than a mere repair would do. Some factors that point to work done to property being an improvement include whether the work will extend the property's income producing ability, significantly enhance its saleability or market value or extend the property's expected life.

45. To distinguish between a 'repair' and an 'improvement' to property, one needs to consider the effect that the work done on the property has on its efficiency of function. This is the determinative test.

46. If the work entails the replacement or restoration of some defective, damaged or deteriorated part of the property, one does not focus on the effect the work has on the efficiency of function of the part . That is not determinative of whether the property is repaired or improved. It is a relevant factor to take into account, however, in considering the effect of the work on the property's efficiency of function. It is possible, for instance, that the replacement of a subsidiary part of property with a part better in some ways than the original is a repair to the property without the work being an improvement to the property.
 
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