Claiming Renovations

[Brett IP]

Good Afternoon

I have a query in regards to claiming renovations on a house - Quantity Surveyance Report. If you live in your house for say 5 years, over which time you renovate and improve the house immensely (new kitchen/paint/coverings etc $50k+), can you depreciate the cost of the renovations once it becomes an Investment Property?

I always thought you could, but was told today you cant, only if the renovations are done while its an IP?

The tax agent advised this is simply added to the cost base & CGT isnt payable on that amount when you sell. But arent those items part of the building which are depreciable? Little confused

 

[Melbournian]

cost base.

 

[Rob G.]

Yes you can start claiming.

Div 43 building depreciation - remember to reduce your cost base

Div 40 capital allowances - oven, hot water tank, etc.

Just remember that they will have declined in value already during your occupation, you just start deducting the remaining decline over time.

Cheers,

Rob

 

[syba]

Yes you can claim the deductions. You start depreciating/writing off the items once they are installed, so you need to keep a record of when things were done and how much they cost.

If the items were classed as a repair (which isn't likely), then your accountant is correct as they are immediately deductable in the tax year the expense was incurred (when it was a PPOR you can't claim deductions)

The painting, kitchen cupboards and other 'capital' items are written off at 2.5% a year. So assuming $40k of the cost are capital items, you'd write off $1k a year for 40 years from the date of installation.

Since you can't claim the depreciating items straight away, you may lose much of the depreciation there. A way of minimising that is to either use the prime cost method, or you can use the dimishing value method but not use the low value pool until the year in which it becomes an IP (or the year after as the first year would most likley be a part year so would still lose a bit of depreciation).

 

[Brett IP]

Excellent

Thanks everyone, makes sense