Does it make sense to pay cash in this case?

Hi guys

Assume the following:
1. You are renovating a property, works include replacing existing kitchen, replacing bathroom, and opening up a wall & adding a wall to create an extra bedroom.
2. Quote for works in cash $20k
3. Quote for works with receipt $30k (same guy doing the works)
4. You have sufficient savings to pay for the works in cash for $20k

I understand renovations are not necessarily tax deductible in whole in the year you do the renovation, eg: you can't claim $30k as a deduction in your tax return? Instead, a lot of the works will be depreciable or be subject to special building write off - this means spreading the deduction over a long time?

Does it make sense to just pay cash and save $10k NOW?

Cheers
 
How do you prove you paid $20K for reno without a receipt if you get audited by ATO? What about if there are problems with any completed work? you cant prove the job was done, and by whom. I do love a good cash deal tho.
 
Doesn't make any difference which method you pay. You still need a receipt so that a) You can claim the relevant deductions and b) He can declare the income he's receiving.

If he's not doing the latter, I'd rather choose someone else rather than contribute to illegal activity.
 
Sorry I should've clarified in original post.

He agrees to write you a signed note for the monies you pay and confirm he did the works. He has been in business for 20 years with current builder/trade licenses and insurance.

If you're prepared to pay cash he will give you a lower price. You don't really ask why because you assume it's not your business? Some people need cash for reasons you can't think of?

You recall paying for groceries at the local market in cash, paying milk at the convenience store in cash, paying for home delivered food in cash. You wonder maybe you can also pay tradies cash?

You don't really need to claim deductions. The purpose of the Reno was to increase rent. Given the relatively low outlay, the Reno cost can be recouped through higher rent in a couple years.

Would you still not consider the cash option at all?

Maybe a better hypothetical is you get a cash quote for the works for 20k, another guy will do it for 30k with tax invoice. Rather than the same guy offering you the two options as I can see why people might assume something is dodgey about it
 
You recall paying for groceries at the local market in cash, paying milk at the convenience store in cash, paying for home delivered food in cash. You wonder maybe you can also pay tradies cash?
Yes you do pay cash for a lot of this things, but they give you receipts (or you can ask for one) and the receipt will show your gst and list of items you paid for.

You don't really need to claim deductions. The purpose of the Reno was to increase rent. Given the relatively low outlay, the Reno cost can be recouped through higher rent in a couple years.

Would you still not consider the cash option at all?
Probably just me, but the answer is no if I can't get receipts of the work done. $20k is not a small outlay for me, 2/3rd of IP deposit!

Maybe a better hypothetical is you get a cash quote for the works for 20k, another guy will do it for 30k with tax invoice. Rather than the same guy offering you the two options as I can see why people might assume something is dodgey about it
I'd probably source different quotes, maybe separate quotes for each components to see if I can get them cheaper, also source material myself maybe, rather than paying cash.
 
I don't see why you can't still get a depreciation report post renovations, have a quantity surveyor value the work and table the depreciation items?
 
I have previously posted on this topic.

Conspiracy to .... is a criminal act that the ATO could allege if detected. It takes two to conspire to commit tax fraud against the Commonwealth. That's the most serious issue. If detected you could be arrested without warning, interviewed and even asked to co-operate to give evidence against the tradie who also was party to the conspiracy. Expect your home , records and computer to be seized etc. That's the worst case. The least may be a investigation, interview and ATO seeking your wilful disclosure to prosecute the tradie.

Then there is the tax issue.

Cash:
- No deduction for a reno anyway (Never deductible in any case)
- Loss of the capital allowance and CGT costs v's the receipt basis.
- Given that average marginal tax rates are around 38% the foregone tax benefits of a $20K cash v's a $30K receipt would equate to $6- 11K of foregone cashflows for enhanced deductions or reduced CGT (approx.)

Receipt
- Annual cap allowance available $750+ annually (Min 2.5% pa)
- $30K adds to CGT cost base and reduces taxable gain by $15K saving around $6K
- No dishonesty

I always question the conduct of tradies who offer this sort of deal. I bet you if they are injured on your premises they will seek to claim. All bets are off if they see fit.

Warranty ? A dispute in court usually will come down to proof of value of the claim. You may have no claim.

Also if they are so willing to shave corners on tax are they legit and using quality materials or do they seek to cut corners to make a buck rather do a high end job ?? Cheaper quality ? Second hand materials ? Unskilled labour ? Uninsured ? Unlicensed ? Stolen property ?? If they steal from the Govt your home and its contents are at risk aren't they ??
 
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