Claim House as an IP after 6 months spent on reno?

[DanielG]

Hi,

In December I moved into my IP to renovate it. I spent 6 months there (have all receipts) and renovated it myself as I lived and worked in the area. After 6 months, I have now completed the reno and I am leasing it back to tenants. Can I still claim the property as an IP and claim negative gearing off it? The reason I moved into the IP was that it was in another state and I wanted to do the reno's myself instead of paying someone to do it without me there to keep an eye out on the work.

Can I still claim the expenses against my income for that period or will the ATO say that it became my PPOR for that period?

 

[westminster]

Hmm 6mths is a long time.
I don't think the ATO will look kindly on that.

I'll let the accountants come in and say.

 

[The Y-man]

You can't deduct reno in any case.

https://www.ato.gov.au/Individuals/...-properties/Rental-properties-2012-13/?page=9

The Y-man

 

[Ed Barton]

Can I still claim the expenses against my income for that period or will the ATO say that it became my PPOR for that period?

It may, or may not have become your PPOR for that period, it's somewhat up to you to decide that (for CGT).

But was it rented, or available for rent during that six months - no. No deductions IMO.

 

[D.T.]

Not available to rent = not allowed to deduct for the period
Reno = not deductible regardless

 

[Paul@PFI]

The tax issues arent quite as black and white as some have posted.

1. Provided you did not own another main residence during that 6 months you can claim that it is your MR. You and your spouse cant each have a MR however ! Its an election (choice)- You would lose MRE on your home and gain MRE on the other for that period.
2. The expenses incurred in reno's arent outright deductible. Some may ?? Repairs to correct former tennat damage etc. Replace or improvmnets = No.
3. Some of the reno costs may be deductible under the $300 cap. Over $300 NOT deductible.
4. Expenses over $300 likely depreciable OR capital allowances...
5. While doing renovations etc the property may be available for rent yet not be rented. 6 months seems genrous though.,...Was it 6 months solid ?? Worth a chat with tax agent on that issue. Personally I would think the ownership costs for that period cannot be claimed as you occupied the IP. So your cheaper reno now has a hidden cost.

You labour etc is not a cost. You did it for love. I often get asked if value of the work can be used. NO. Even if you are a tradie.

I would recommend a QS report. Advise costs of all the reno's. The QS may enhance the value of the work perfromed above actual cost. Also likely to pick up reisdual depreciation and cap allowances.

 

[superAndrew]

Can I still claim the expenses against my income for that period or will the ATO say that it became my PPOR for that period?

Once you put the property up for rent, it becomes an IP and you can deduct future expenses from that date.

Renovation expenses are generally not deductible unless it's a repair but not an improvement.

From the ATO

Expenditure for repairs you make to the property may be deductible. However, the repairs must relate directly to wear and tear or other damage that occurred as a result of your renting out the property.

Repairs generally involve a replacement or renewal of a worn out or broken part, for example, replacing some guttering damaged in a storm or part of a fence that was damaged by a falling tree branch.

However, the following expenses are capital, or of a capital nature, and are not deductible:

• replacement of an entire structure or unit of property (such as a complete fence or building, a stove, kitchen cupboards or refrigerator)
• improvements, renovations, extensions and alterations, and
• initial repairs, for example, in remedying defects, damage or deterioration that existed at the date you acquired the property.

You may be able to claim capital works deductions for these expenses;

 

[Rob G.]

I would recommend a QS report. Advise costs of all the reno's. The QS may enhance the value of the work perfromed above actual cost.

A QS cannot "enhance" the costs of a reno.

If the owner incurs and/or knows the cost then that is what it is.

The whole QS business exists on an ATO concessional practice of accepting estimates of capital costs in the circumstances of a property purchaser who does not have the original owner's paperwork.

There may be value in getting advice from a QS or accountant as to whether amounts are deductible repairs & maintenance, depreciating assets or capital works.

 

[Rob G.]

Hi,

In December I moved into my IP to renovate it. I spent 6 months there (have all receipts) and renovated it myself as I lived and worked in the area. After 6 months, I have now completed the reno and I am leasing it back to tenants. Can I still claim the property as an IP and claim negative gearing off it? The reason I moved into the IP was that it was in another state and I wanted to do the reno's myself instead of paying someone to do it without me there to keep an eye out on the work.

Can I still claim the expenses against my income for that period or will the ATO say that it became my PPOR for that period?

Claims for interest, rates, land tax and other revenue type holding costs may still be deductible.

This will be a question of fact.

Diaries and accounts will be useful evidence of actual use and purpose.

Mere restorative repairs may also be deductible, but "renovation" may involve capital improvements which may be depreciable over time.

 

[Paul@PFI]

A QS cannot "enhance" the costs of a reno.

If the owner incurs and/or knows the cost then that is what it is.

The whole QS business exists on an ATO concessional practice of accepting estimates of capital costs in the circumstances of a property purchaser who does not have the original owner's paperwork.

There may be value in getting advice from a QS or accountant as to whether amounts are deductible repairs & maintenance, depreciating assets or capital works.

Not true. They estimate others construction costs. It's a good strategy to get a new schedule sometimes without
Ka build. You thinking like an accountant that a deduction comes from a cost. Write off's and losses and deductions don't always need a spend

 

[Rob G.]

Not true. They estimate others construction costs. It's a good strategy to get a new schedule sometimes without
Ka build. You thinking like an accountant that a deduction comes from a cost. Write off's and losses and deductions don't always need a spend

The original post was about the owner doing the reno.

They cannot claim their own labour as part of construction cost.

They know the actual cost of materials and contractors.

Then that is the "construction cost".

It is a matter of law.

 

[Paul@PFI]

This is a issue that happens. If Owner 1 does a reno and doesnt have a schedule (PPOR) and Owner 2 comes along and gets a schedule those works get "valued" and factor into the schedule. Owner 1 may have been a builder or may have been a DIY master and completed work for well below cost. Or his/her father may have done it out of love. No cost maybe ? The QS report "refreshes" the value.

So stands that if Owner 1 does works then calls up a QS and tells them he wants a schedule and the prev owner did the work what proof is there ?? Same applies if he calls the QS and doesnt disclose that he did the work for well below value.

QS reports are often based on visual rather than a known construction cost. Otherwise accountants might do them if they were based on historical cost. I dont advocate a 'scheme' to inflate deductions but I surely wouldnt be first person to consider this. I havent seen a Taxpayer Alert or similiar either.

Interested in the views of our QS posters on this.

ATO view is certainly that the present owner must use actual costs. Taxpayers need to use one of the following to use estimates of construction etc:
o quantity surveyor
o clerk of works, such as a project organiser for major bldg projects
o supervising architect who approves payments at project stages
o builder experienced in estimating construction costs of similar proj.

BMT certainly highlight the beenfit of reevaluation of prior costs "Anything in the property that is part of a previous renovation will be estimated by our quantity surveyors and depreciated accordingly. This includes items that are not obvious e.g. New plumbing, water proofing, electrical wiring etc We apportion preliminary and consultant fees (site costs such as fencing, cranes, delivery, installation, Architects, Draftsmen, Engineers etc)."...

So owner 2 can refresh costs to value, owner 1 cant. I would argue ATO have never checked a QS report for cost estimates for a owner-build with prior owner and knocked a report back.