repair claim or have to depreciate carpets

[mitta]

Hi all,

Our first IP is now 9 years old and the original tenants have just moved out. After this length of time the carpets have suffered, mostly with just normal wear and tear.

Would the cost of replacement carpet be claimed as a repair or would we start again with depreciating them over 10 years ?

Also we have had the interior repainted, heaps of cracks ( stress fractures ) in the walls etc , would this cost ( the painting ) also be claimed as a repair or would it be depreciated at 2.5% ? Mark

 

[Pat]

Hi Mark,

The carpet is an interesting one and requires a professional tax opinion because there is no particular case or law for this question. Despite this the ATO suggests that replacing the whole of the carpet in the house would indicate a capital improvement that should be depreciated over 40years. I tend to disagree with the ATO. Normal wear and tear on the carpet means that replacing it back to its original condition would be 100% deductible.

I would argue that the same applies to the repairs to cracks and repainting as long as this just brings the walls back to their original condition.

 

[letiha]

I thought that carpet was alwys a depreciating assett and not a capital improvement. I know when I capet my newly constructed IP's the car pet is a depreciable item, asnd as far as ATO, I am fairly sure it is listed on their rental guide that it is depreciable..not a capital improvement.

 

[mitta]

I am fairly sure it is listed on their rental guide that it is depreciable..not a capital improvement.

Yes Letiha new carpet is depreciable over 10 years and Pat I take your point that the ATO might only think that the damaged piece of carpet and not the whole house full is claimable as a repair. Thanks guys. Mark

 

[Pat]

Sorry Mark, I meant 10 years for depreciating carpet not 40 years as previously mentioned but there is a tax law argument for immediate write off if the new carpet is just restoring the house to it's original condition. We don't always have to blindly be bullied into agreeing to ATO practice statements etc. on these issues.

 

[WashingtonBrown]

No likes a bully PAT!!

I think you might be a bit bullish in this case though!

The carpet has just about run its normal wear and tear allowance....then the clients replaces ALL the carpet - and you suggest the client can claim an outright deduction for bringing the carpet back to the original state.

I wouldve thought this is against the whole princple of claiming plant based upon the effective life.

Sure the client should be able to claim the 1 year residual lef on the carpet as an otright deduction.

But to claim the full amt might be a bit bulish....but you are the accountant - and i'm just a silly QS.

All the best

 

[mitta]

Hi Mark,


I would argue that the same applies to the repairs to cracks and repainting as long as this just brings the walls back to their original condition.

Thanks guys, thru your posts I now understand the carpet situation.

Regarding the cracks in the walls, I now gather that the costs associated with these can be claimed immediately as repairs.

However, with the repainting of the entire interior, after only 9 years, my query is would the painting costs of a new home be added to the original building structure cost ie; depreciated over 40 years. Meaning in this case there is still about 30 odd years of the original painting costs to be claimed. How does this works ? Mark

 

[Pat]

Hi Guys,

I just think to blindly accept that all new carpet and painting is a Capital Improvement is succumbing to the ATO. If you are replacing what was there can this not be claimed 100%? I admit a whole house from top to toe would lean towards a 10 year write off but each circumstance is different and the words "replaced back to original condition" represent a 100% write off.

Every circumstance is different.

 

[Mry]

I'd rather follow the ATO recommended guidelines here and call carpet 'plant'. That allows you to claim more depreciation upfront, and if you replace the carpet you can write off the old balance under 25-10 (unless you pooled it) and start depreciating the new one.

Besides, if you took the approach that carpet was not plant, you would get depreciation schedules from the QS people, remove carpet from the depreciating assets and put it under Division 43 and then have to explain to the client why they don't get more depreciation.

 

[redsquash]

A hot water service is deemed to depreciate at 7.5 %

If bought new at $2500 what happens 10 years later when repairs cost $3000.

Does the HWS continue to depreciate at the same rate using the same $2500 computation , and I just claim $3000 as a a repair in the year the $3000 repair occurred?

 

[depreciator]

Not exactly sure what you mean by the last paragraph, Redsquash, but if you spend $3,000 on a hot water unit, it's unlikely you are repairing it. You will probably be replacing the entire thing. Therefore you will have to depreciate the new one.
Don't forget also, that when the value of the item falls below $1,000, you have the option of the Low Value Pool rate.
Scott

 

[redsquash]

Not exactly sure what you mean by the last paragraph, Redsquash, but if you spend $3,000 on a hot water unit, it's unlikely you are repairing it. You will probably be replacing the entire thing. Therefore you will have to depreciate the new one.
Don't forget also, that when the value of the item falls below $1,000, you have the option of the Low Value Pool rate.
Scott

Scott,
sorry for being so unclear.

$300０ dollars to repair or in excess of $5500 to replace the hWS.
Actially the quote came in at $2600today.
remember the age of the unit is 10 years old and costs have increased,. It still has many more years of life than is reflected by the tax code.

So put another way do I just claim a $2600 repair and continue depreciating the reduced assesed value of the hWS purchased many years ago. Thus in about 4 years the value will be deemed zero , if kept depreciating at 7.5%.

This is a solar HWS so there are collectors and a tank. The tank is in excellent condtion.

 

[depreciator]

Yep, if you're not replacing the whole unit, your accountant will probably claim that $2,600 as a repair. If you've owned it for 10 years, the HWS will more than likely be in your Low Value Pool and will stay there depreciating. Its written-down value by now will be pretty low.
Scott