Replacing septic system of Investment property-Are there ANY Tax benefits? If so how?

Hi everyone,

I am a long time memeber i havent been on for ages and forgot my username and password! So this is post #1 under my new username!

Just wondering if anyone can give me some info. We have an 'investment' property on QLDs Sunshine Coast and have recently been advised that the exisitng septic system (it is rural) isnt adequate anymore and needs relocating and replacing. We have to have a design drawn up and go through council and have it all done properly which is looking to set us back close to 10K.

I have been told that there are absolutely no tax benefit to doing this type of work (ie can we claim any of it in our tax return?) the only thing i have heard is that you claim any loss against your capital gains tax when you sell? I am not tax savvy but was really hoping we would get abit of $ back for the expense come tax time????

Can anyone advise what the deal is with septic system work on an investment? Are there any loopholes? This is killing us financially to the point where we may have to sell.

Many Many Thanks!
Hi there,

For questions like these, there is an easy way to search for a similar situation to yours over at the tax office's website.

Go to here for the Register of Private Binding Rulings. Type "septic" into the search box.

O looky, here's a nice answer for you -
They managed to get a full deduction, but only because
(a) "The property was in good condition when purchased and has been well maintained", and
(b) the replacement of the septic system constituted a repair, meaning "A repair involves a restoration of a thing to a condition it formerly had without changing its character."

The only things that worry me about your particular situation is that
(a) you refer to this property as an 'investment' property with inverted commas (meaning it may not be a bona fide investment property) and
(b) you haven't mentioned if the septic system was seen to have problems when you purchased the property. Rectifying problems that you recognised when purchasing the property are usually not deductible.

Best case scenario - Full deduction
Worst case scenario - You can claim 2.5% of the cost per year.
A repair brings things back to the same condition as when the property was purchased.

Anything better than what is being replaced is an improvement and only possibly deducted under the 2.5% depreciation.

It is hard to imagine you will be replacing like with like (particularly when relocation is involved), therefore deductions will be minimal.

However, you can always request a private tax ruling if you feel your circumstances are unique.
I'm sure you know your septics, but on a completely different note...

Why after so many years would in not be adequate?

I don't know much at all about them, but would like to know if it's usual to move them (replace) because they cease to do their job? How do they stop working? And why can't they be fixed?

If the person that told you that you need a new septic also makes new septics, then perhaps you should get a second opinion from someone that doesn't.

10K is a lot for something that doesn't increase the value of a home, or help increase the rent, so I'd want to be sure I absolutely needed it.
Hi everyone, thanks so much for the links and replies.

ergh i cant remember how to quote!

Mry - Thanks so much for the useful links i will have a good read but your info sounds pretty spot on to what our accountant said (in accountant language) It has given me some questions to pass onto my accountant.

(a) you refer to this property as an 'investment' property with inverted commas (meaning it may not be a bona fide investment property) It is a bona fide investment property (as in the loan is an investment loan and it was purchase for the sole purpose of being an investment) I call it an 'investment property' loosely because at the moment its draining alot of our money and we arnt seeing much return. Rents were flat last time we re-let it so we arnt getting much return there and we bought at peak time in QLD and now the market up there is very very flat. So if we sell we will be lucky to make back our money!

(b) you haven't mentioned if the septic system was seen to have problems when you purchased the property. Rectifying problems that you recognised when purchasing the property are usually not deductible.
I guess the problems were exisiting due to the age of the house but were not seen in any building reports that we had done, so in that instance no they werent seen! But in tax terms i guess they were exisiting :(

Weg, thanks for bringing up these questions!
Abit more background info...
It is an old property. An old orchard in fact that had been split up into smaller acreages. Our house is the original house and the septic system therefore is also 'original' the tank has the capacity for probably 2-3 people and has needed regular pump outs. The location issue is that back in the day they didnt care about aesthetics it was really only function that got a look in and the septic tank sits right at the front doorstep of the house. Which if you were thinking of renovating this would need to be moved anyway as you cant build over the top of a tank.
The seepage area is not too far from the house either and is covered by two 150 year old trees which provide too much shade and given the amount of rain they get the seepage never gets a chance to dry out causing a smell and flies.
So afew things need to happen.
-The tank needs to be bigger
-The tank needs to be relocated to a more aestheically pleasing spot away from any future reno areas.
-The trenches need to be re-dug and redirected somewhere where the seepage will actually get a chance to dry out.

We have had two plumbers look at it and theyve both come back with the same stories. So unfortunately i dont think we are being spun a lie :(

Hopefully, if we do sell, the fact that the house will have a brand new septic system might get it over the line. It might not make us more money but in such a flat market we hope to just be able to sell the damn thing!!!!

Thanks again :)
My thoughts are a bit off centre but consider;

If you are going to do it regardless, is it possible to make enquiries to Council and ask "does this comply with existing requirements"

They may thunder that it does not and you must upgrade immediately, get all this in writing and I would think that it then becomes a legal directive from the council.

This directive then means that you Must upgrade which could then be a legitimate expense for the ATO as you are simply bringing the building up to the legally required standard.

As a temporary fix is it possible to put in some ag pipes and drain the surface water to a lower point. If it is already the low point can you put some filling there to raise it up so that the rainwater drains somewhere else.

Another possibility could be some surface dish drains to direct the rain water away from the septic area which would stop that area getting sodden and help the septic water dry out.
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