Deductability

[zimby]

Hi

So we've got early access on a property and doing some minor cosmetic work.
I've decided the carpets need to get replaced( cheaper than tiling), as pretty much the whole house is carpeted the cost is getting up there.
At what point can I claim work as repair and not capital/depreciation?
It might be more cost effective to install the carpet just as the place is tenanted, but have it advertised as a new carpet going in.

Cheers

 

[Rolf Latham]

I expect even there new carpet will be depreciation and not repairs

Tax pepos will provide their view soon

Ta

Rolf

 

[Paul@PFI]

Carpet is depreciable. In any case even if an expense was a repair eg flyscreen its also non-deductible and considered part of cost base as it is an initial repair. Initial repairs are not deductible and reflect theat the price you have paid included those defects. Making them good is no different to paying more if they had been corrected by the vendor.

I assume by early access you mean you just bought it ?

 

[Propertunity]

At what point can I claim work as repair and not capital/depreciation?

At the point where the property has been rented out by you to tenants for a "reasonable" period........and as the others have said.

 

[Paul@PFI]

At the point where the property has been rented out by you to tenants for a "reasonable" period........and as the others have said.

Depends on the repair. Some unlucky LLs have a tenant move in and immediate repairs are needed as a cooktop element burns out within days. Hard to argue after 3 days that the roof needs to be repairs for leaks when the ceilings are water marked.

 

[Perp]

Depends on the repair. Some unlucky LLs have a tenant move in and immediate repairs are needed as a cooktop element burns out within days. Hard to argue after 3 days that the roof needs to be repairs for leaks when the ceilings are water marked.

If you get early access to do works prior to settlement, are they still claimable, given that you don't yet own the property?

Or does it go from contract date, similar to CGT?

If so, does that mean that a vendor, once they have a contract to sell a property, has no deductibility on expenses in the period between contract and settlement?

 

[Rob G.]

"Early access" ?

If the property has not settled then not only are the expenses capital, but they will not form part of the cost base of any CGT asset if the sale falls through.

The best chance then would be if they form part of any cost base of the right to sue the vendor if any breach.

 

[Propertunity]

Depends on the repair. Some unlucky LLs have a tenant move in and immediate repairs are needed as a cooktop element burns out within days. Hard to argue after 3 days that the roof needs to be repairs for leaks when the ceilings are water marked.

Yeah, good point Paul.

My comments were more geared towards the "carpet replacement" issue.

 

[Aaron_C]

Yeah it would be hard to argue that there is a 'repair' that needs to be done soon after settlement rather than a capital improvement...

 

[zimby]

Yeah it would be hard to argue that there is a 'repair' that needs to be done soon after settlement rather than a capital improvement...

Good thing the works aren't big then
I should really get an accountant( have contacted a few but yet to follow up)

 

[Perp]

Rob and Paul: can you clarify that this is correct? (Provided the IP actually settles)

1) Capital improvement expenses incurred by the purchaser between contract and settlement can be depreciated, and


2) Repair expenses incurred by a purchaser in this period would *not* be deductible (as not associated with earning income)?

 

[Aaron_C]

Surely the 'repairs' included in this timeframe are just standard capital improvements and are depreciated according to schedule?

 

[Paul@PFI]

Rob and Paul: can you clarify that this is correct? (Provided the IP actually settles)

1) Capital improvement expenses incurred by the purchaser between contract and settlement can be depreciated, and


2) Repair expenses incurred by a purchaser in this period would *not* be deductible (as not associated with earning income)?

1. I would have the QS add them to the schedule. Yes.
2. Correct. Initial repairs. These are considered capital expenditure. They may form part of the building, plant etc and also be included on QS report.