deduction on huge repair bill?

[graisme]

hi
it seems that i will be up for a large repair bill (around $100,000) to rectify a structural defect in a commercial building i own. are the costs associated with it wholly tax-deductible in the first year as it is a repair? i've had drawings done and assume that they will all be classed with the same 'brush'?

the defect relates to a retaining wall which has moved at the front of the building...

 

[Player]

Hi ya Graisme,

At face value, my immediate impressions are that as it is a repair (not an improvement, extension, renovation) of a wall (not the whole strucutre of the building or asset) then the whole thing should be allowed as an expense for immediate deduction.

Careful wording of the quote/account and description of works would be needed and also best to run this past your accountant.

Having said that however, the only situation I can think where you may strike difficulty is if it is the entire retaining wall you are replacing. Whilst the retaining wall does not comprise the whole building/asset, it may be classed as a sole physical entity in and of itself and if you are replacing all of it you may have issues that it may ned to be depreciated, even though it affects the strucutral integrity of your building. Is it the entire retaining wall you need to replace?

A bit more complex than face value come to think of it. Certainly, get professional advice as well.

 

[Rob G.]

hi
it seems that i will be up for a large repair bill (around $100,000) to rectify a structural defect in a commercial building i own. are the costs associated with it wholly tax-deductible in the first year as it is a repair? i've had drawings done and assume that they will all be classed with the same 'brush'?

the defect relates to a retaining wall which has moved at the front of the building...

Was the defect present whan you bought the property - even though maybe not obvious then ?

Cheers,

Rob

 

[graisme]

i don't know if it was present when i bought it. i've certainly only been aware of it recently.

and yes, it seems that the entire retaining wall needs to be replaced as it may be dangerous.......

as i have to use substantial funds to do the repair, it would be nice to think that i could claim it as a loss in one year instead of 40 whilever i still have to pay interest on the funds...

hope this is not wishful thinking though....

 

[marg4000]

How long have you owned the property?
Marg

 

[graisme]

i've owned it since 2002 and was not aware of the issue until the tenant complained about a different problem. when i had engineers in to look, they told me about it.
seems insurance won't cover it...

 

[Ms Jade]

I would think that if you've owned it since 2002 you should be OK. In case the ATO question it, it would be nice if you had a building inspection when it was purchased. If it was a $1000 repair there would no problem so I don't see that the value should make a difference to the principle of expensing it. If you are worried, perhaps get a structural engineer or even the firm doing the repair to give you a report detailing what they think the issue is. Hopefully they will put the timeframe somewhere short of 8 years. I'd be interested to hear how you go with it.

 

[jrc]

Assuming the timing issue is OK, the next issue to consider is whether how the problem is fixed will be classed as a repair. Use of different materials etc can change the characterisation from one of repair.

 

[graisme]

hi all
ms jade, getting the structural engineer to give me a report as to a time frame is a good idea, thanks.

i am a little confused though jrc, what do you mean about how the work is done?

i've had engineer's drawings done and contacted builders for quotes. five sets of drawings went out. only quote so far after several months came back at $95,000 but i don't know if that covers all the work or not as i haven't seen the quote yet.

there are two sets of works to be done, both of which relate to structural issues. the first is the retaining wall at the front of the property. the second is the reinforcement of bearers etc on the first floor of the shop as it seems that there weren't enough bearers put in when it was built....

am interested in all advice.....

 

[Nathan]

My thoughts would be in line with others currently presenting, however speak to your accountant as they would know the correct answer.

It is a repair to bring it back to its previous uneffected state then I do not see how it constitutes as an improvement.

 

[Rob G.]

there are two sets of works to be done, both of which relate to structural issues.

the first is the retaining wall at the front of the property.

If this is a substantial knock-down and rebuild, then its a capital cost, otherwise if it is to make the wall "better than it was" then its an improvement.

the second is the reinforcement of bearers etc on the first floor of the shop as it seems that there weren't enough bearers put in when it was built....

this is an "initial repair" or else an improvement.

am interested in all advice.....

Now we are starting to get information ... and it doesn't sound good.

Cheers,

Rob

 

[graisme]

robg; can you please explain?;
If this is a substantial knock-down and rebuild, then its a capital cost, otherwise if it is to make the wall "better than it was" then its an improvement.
both seem to lose......

i believe it will be the removal of the existing wall and it's replacement. it's dodgy. needs replacing....... cap cost or?

 

[Rob G.]

robg; can you please explain?;
If this is a substantial knock-down and rebuild, then its a capital cost, otherwise if it is to make the wall "better than it was" then its an improvement.
both seem to lose......

i believe it will be the removal of the existing wall and it's replacement. it's dodgy. needs replacing....... cap cost or?

Yep ... any way you look at it, it seems remarkably like a capital cost.

Cheers,

Rob

 

[kathryn d]

We are having a very similar situation here in Canada.
We purchased an apt building in 2005.
We repaired the roof.It is a flat top.It was extensive and expensive.However, all it was , was a repair, to bring it back to its original condition.
We used same materials as when it was originally built etc.
Revenue Canada (similar to ATO) deemed it was a capitl cost because we replaced it. Our accountant, at the time, said to claim as a repair.
This is our battle at the moment. We are in the "objection" portion of our claim. They also wanted to see the quote and how it was referred to.The quote said "remediation kit of the roof". Will find out shortly the outcome.
We are coming up to almost 2 years since pur initial audit.

So yes, wording can be extremely important when getting quotes done.