Damage between signing and settlement

If damage occurs within a property between the time a contract is signed and the time it is settled, would the costs of rectifying the damage be considered a capital expense or a claimable deduction?

(all issues regarding vendors liability aside)..

Duncan.
 
Duncan,

It could go either way.

The problem comes back to it being "known" at settlement time and you should reduce the settlement price consistent with the damage. If Settlement is adjusted down, then it is of capitol nature and depreciable only.

Another option maybe to claim on insurance.

Noddy.
 
Hi Duncan,

To the extent to which the cost of estimated repairs is ultimately reflected in a reduced purchase price, any repair of this damage you undertake will be what's called an "initial repair" and will therefore not be a tax deductible repair. Neither will you be able to claim depreciation on this expenditure, althougjh it will be added to the cost base of the property.

Where the property is rented by the vendor, another option maybe to negotiate for the vendor to carry out the repairs before settlement. The repairs would not be "initial repairs" if carried out by the vendor before settlement and would be fully tax deductible to the vendor.

Assuming that the vendor can claim the 50% CGT general discount on sale of the property, this scenario may leave the vendor in a better after-tax position, than if they were to agree to a simple reduction in the purchase price for the amount of the repairs. Of course knowing that this scenario may have some after-tax benefit to the vendor, you may be able to negotiate with the vendor to split this benefit and have it reflected in a reduction in the purchase price.
 
Duncan,

Out of interest, why have you "Put vendor liability aside"?

I would have thought that since any damage done during this time was the responsibility of the vendor, the question of what tax implications there are seems moot.

I was just wondering what your thoughts on this were?

asy :D
 
Originally posted by asy
Duncan,

Out of interest, why have you "Put vendor liability aside"?

I would have thought that since any damage done during this time was the responsibility of the vendor, the question of what tax implications there are seems moot.

I was just wondering what your thoughts on this were?

asy :D
Well, hypothetically, maybe I knew something was damaged when I signed the contract, and suggested the vendor need not fix it in an attempt to get my low offer accepted.. and I'm wondering how the repair could become tax deductible.

Duncan.
 
Hi peoples,

This is more to do with the vendor liability part(sorry). It was commented in a post that a certain person (whom shall remain nameless) has a removable bullnose verandah that they place on a house whilst selling and remove after the contract is signed. Surely this can not 1) be legal and 2) be ethical?

Cheers
Chris
 
Chris,

Legal. I presume so. Otherwise it could not have been done.

But, if someone did do these things, and said up front that these things were being done (eg, if the topiary and bull-nosed verandah was rented), then legally there would not be a problem.

If you told people up front, (eg, in big letters at the front of the full-colour brochure), would that be unethical?

(of course, if you did not say so, the would not be ethical, and possibly illegal- from a non-lawyer's opinion!)
 
Top