Flipping & Tax Deductions

[deepindebt]

Hi All,

Looking at buying a IP with the intention of renovating and selling.

This would happen in less than 12 months so no CGT discount and property would not be rented out or treated as a PPOR.

Would capitalise the interest on funds borrowed.

Can I claim a tax deduction for the interest and costs incurred in the reno under these circumstances?

Cheers

 

[macca446]

Their are others who would 100% know ,but I think by flipping a property that never had tenants and sold within 6 months I do not think you can.

Macca446

 

[Terry_w]

Hi All,

Looking at buying a IP with the intention of renovating and selling.

This would happen in less than 12 months so no CGT discount and property would not be rented out or treated as a PPOR.

Would capitalise the interest on funds borrowed.

Can I claim a tax deduction for the interest and costs incurred in the reno under these circumstances?

Cheers

s8-1 says y ou can claim expenses to the extend they are for business or investment related and not capital items.

 

[Paul@PFI]

I would start with your intention to make a profit. Is it intended to a be a recurring stream or a few isolated transactions. Maybe even a single isolated event ?

First thing its assessable income no matter what - Question is it a capital gain or on revenue account. This is a concern as most taxpayers would seek to access the general 50% CGT discount where the asset is owned for more than 12 months. I note you arent seeking to defer sale etc. But things happen - You should consider the issues as projects always run over time or over budget. Planning a gain that is 50% taxed can be a nice bit of cream at the end. But you shouldnt recklessly seek that discount without ensuring youare entitled to it either.

As Terry points out s8-1 is the "nexus to income" requirement in the tax act. Therefore whether its on revenue or capital account I would adopt the same basis for claiming deductions. Claim them to offset the gain / revenue etc. ie : All deductions offset the income.

Then around that time when you are ready to sell I would revisit the issue of whether to consider revenue or capital account. If you dont propose to repeat the process I would consider its on capital account.

 

[T.G]

What would you do if you wanted to do this a a full time gig

 

[coastymike]

Paul

Seems to me to be a profit from an isolated transaction even if never done again. Why would it be capital ?

http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR923/NAT/ATO/00001

 

[Ausprop]

consider your position on GST as well