Initial repairs - under $300 ??

[onion33]

Situation: I've bought my first investment property. Before I rent it out, I want to replace minor things such as ceiling fans, light fixtures, blinds . I underrstand that these are initial repairs and therefore can't be tax deducted that year. However, each of these items will cost well under $300.

Even though they are initial repairs (and therefore capital works), can I claim them immediately because they are under $300?

Thanks.

 

[superAndrew]

Yes you can.

Here is the ato link and the test they use:

https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Deductions-for-work-related-expenses/Capital-allowances--$300-immediate-deduction-tests/

Cheers

Andrew

 

[Rob G.]

Depends upon whether capital allowances or capital works.

 

[onion33]

I don't understand the difference between capital works and capital allowances. As I said, the items are light fixtures, ceiling fans etc.

 

[Paul@PFI]

Those items are fixtures & fittings. No issue providing that Test 3 (the set rule) is satisfied. eg : You buy 5 m2 of flooring in six separate invoices each costing $298...All up its one flooring set. You split the sale and its just one set.

Also the "cost" of a F&F is its installed cost for the purpose of that test. So a $299 basin that costs $120 to be installed would not be eligible.

Also the test isn't just $300. Click on Test 1 in Andrews link and look for the loophole. Jointly held assets can increase this threshold So a 50/50 owned IP has a $600 asset write off threshold.

 

[onion33]

Thanks Paul. Very helpful

 

[datto]

The tax benefits for a taxpayer are far better if you can somehow operate as a business. With IP I believe it can be done.

 

[depreciator]

I don't understand the difference between capital works and capital allowances. As I said, the items are light fixtures, ceiling fans etc.

Onion, Capital Works means structural stuff i.e. the building itself. So that is the roof, walls, windows, doors, wiring, plumbing, ducting, tiling, dunny, kitchen cupboards, benches etc etc. It's anything that that will last a long time. Capital works are claimed at 2.5%pa.

Capital Allowances refers to the Assets i.e. things that won't last as long as the building itself. These include: kitchen appliances, air con units, ceiling fans, blinds/curtains, carpet, floating floor, hot water units, exhaust fans etc. This stuff can be depreciated more quickly because it wears out more quickly.

The under $300 thing does not apply to Capital Works, just to Assets.

If you are installing Assets like blinds and ceiling fans and they are costing under $300, your accountant will write them off immediately.

Light fittings are tricky. If they are hard wired, and especially if they are recessed, the ATO regard them as part of the building i.e. Cap Works. If you are only putting in a few of them, your accountant may slide them through as Assets, too.

 

[Paul@PFI]

The tax benefits for a taxpayer are far better if you can somehow operate as a business. With IP I believe it can be done.

I don't agree. It can be very difficult for an individual taxpayer and even harder for joint taxpayers. Not impossible but very difficult. Under the self-assessment regime, in the absence of a ruling that confirms this basis significant penalties could arise on review if the taxpayer gets it wrong. Part IVA even.

I gather you are suggesting the $1,000 immediate write-off ?? Or the former $6500 write-off rule. (Now repealed by backdated legislation). This just brings forward some deductions and over the medium - long term makes little or no difference. Accelerated depreciation is just a change in the timing of deductions. All prudent taxpayers should always maximise this deduction.

 

[onion33]

Another related question:
What happens if I buy these assets BEFORE settlement date? Does that affect the taxation?

Thanks - I love this forum!

 

[Paul@PFI]

No. Doesn't matter when. You can wait a year and its the same issue. Some items could be many years. eg roofing, damaged structural such as footings, render, movement etc

When acquiring a IP its best to get a building and condition report prior to contracting to buy. The cost is not capital expense unless you proceed. Any items on that report wont be deductible. Consider it a part of the acquisition cost. That's why its a preliminary expense.

Then after settlement get a QS report. It will max depreciation and capital allowance deductions. If that item later fails the written down value of item on the QS report can be scrapped and the new replacement take its place as a new depreciable item.

 

[datto]

I don't agree. It can be very difficult for an individual taxpayer and even harder for joint taxpayers. Not impossible but very difficult.

Should be easy under a company structure. If all your IPs are under a company then you could obtain the small business concessions (provided you qualify in terms of turn over, asset value etc).

The company could also lease a vehicle to carry out repairs, collect rent etc. The immediate writeoff of assets under 1K would be handy, so to the other depreciation benefits.

Draw backs for this scenario would be losing the landtax tax free threshold. CGT events may be triggered if moving IPs from your name to a company.

 

[coastymike]

Totally disagree with the comments re obtaining the small business tax concessions.

A property is an active asset when it is used in the course of carrying on a business. However, a property is excluded if its main use is to derive rent (unless it is leased to a "related" entity which is carrying on a business). This is regardless of whether the property is used in carrying on a business.

Paragraph 152-40(4)(e) of the ITAA 1997 excludes, among other things, assets whose main use is to derive rent (unless such use was only temporary). If the activities carried on by the taxpayer do not amount to the carrying on of a business, it is unnecessary to consider whether the main use of the asset is to derive rent.

the section even states "Example: A*company*uses a house purely as an investment property and rents it out. The house is not an*active asset*because the*company*is not using the house in the course of*carrying on*a business. If, on the other hand, the*company*ran the house as a guest house the house would be an active asset*because the*company*would be using it to carry on a*business*and not to*derive*rent."

Motor vehicle will be subject to fringe benefits tax.

Companies dont get the 50% cgt general discount.

companies get a land tax threshold.

sorry but the advice here is awful and shows a complete lack of knowledge of companies and rental properties.

Many more drawbacks than losing the land tax free threshold.

 

[vaughan]

Won't lights and other fittings bought soon after settlement be initial repairs?

 

[datto]

Totally disagree with the comments re obtaining the small business tax concessions.


Motor vehicle will be subject to fringe benefits tax.

Companies dont get the 50% cgt general discount.

companies get a land tax threshold.

sorry but the advice here is awful and shows a complete lack of knowledge of companies and rental properties.

Many more drawbacks than losing the land tax free threshold.

Its not advice, just an opinion. Thanks for clarifying. Not all motor vehicles are subject to FBT.

 

[dublin_101]

this ***** is very confusing.

i have just bought an IP (weatherboard home), and i wouldn't mind doing some things myself.

simple questions:

- can i fix the rear balcony myself, which can cost up to $299 and write off immediately?

- can i fix the front porch, which can cost up to $299 and write off immediately?

- can i repaint the place myself with paint which can cost up to $299 and write off immediately?

- can i replace the kitchen tiles which are falling off with new tiles up to a value of $299 and write off immediately?

- can i install a BBQ place myself in the backyard which costs $299 and write off immediately?


thanks.

 

[depreciator]

Dublin, read my post above. Read it slowly. I've explained it all pretty simply.

In your case, if you have just bought the house and are making 'initial repairs' to the building: tiling, painting, fixing the porch and balcony, you cannot write off that expense. Because you have just bought the property, in the eyes of the ATO, that work is NOT repairs.

The BBQ is an Asset, like a range hood, heater, curtains, blinds etc. If it costs less than $300, you can write it off in full. The under $300 thing only applies to Assets, not building work as I wrote above.

Scott

 

[dublin_101]

Dublin, read my post above. Read it slowly. I've explained it all pretty simply.

In your case, if you have just bought the house and are making 'initial repairs' to the building: tiling, painting, fixing the porch and balcony, you cannot write off that expense. Because you have just bought the property, in the eyes of the ATO, that work is NOT repairs.

The BBQ is an Asset, like a range hood, heater, curtains, blinds etc. If it costs less than $300, you can write it off in full. The under $300 thing only applies to Assets, not building work as I wrote above.

Scott

Yes I know mate, but I asked my accountant and he said YES to all of my questions. That's the problem (ain't it always), TAX is worse than religion, too open to interpretation.

Re: fixing the balcony....what if i build a small balcony when there wasn't one and it costs me $299 ?? Is that an asset?

 

[depreciator]

Your accountant is wrong.

You still haven't got your head around Capital Works (the building) vs Assets.

A balcony is 'building'. So is a deck, a roof, painting etc etc. they are not Assets so the under $300 thing does not apply.

I'm in the office Monday and Tuesday. Give me a call and we can have a chat - sometimes it's easier to talk than write. People call me up all the time for a chat, so don't hesitate.

Scott

 

[dublin_101]

Your accountant is wrong.

You still haven't got your head around Capital Works (the building) vs Assets.

Yeah I'm starting to understand it now, as you said, read it slowly. To a point I blame myself more than the accountant, as they can misunderstand us just as much as we them, especially when things aren't explained properly.

Your accountant is wrong.
I'm in the office Monday and Tuesday. Give me a call and we can have a chat - sometimes it's easier to talk than write. People call me up all the time for a chat, so don't hesitate.

Yes thanks for that. I may just call you ..