Tax Advantages before Settlement



From: James Wallner

Dear Investors,
No doubt a simple question for those that don't spend all day being a vet, but.....

I have just exchanged on my first IP in Canberra. In the weeks leading up to settlement I wish to improve the garden and paint a few rooms, before I put in tenants. What is the tax situation regarding my expenditure on things like, repairing an existing watering system, mulching and simple plantings, and painting a room. All this is prior to me officially owning the property.

Many thanks to all the experts.

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Reply: 1
From: Land Holdings

I am in a similar situation. I will be inspecting the house this weekend prior settlement to make note of any necessary repairs. I then plan to do them WHILST the tenant is occupying the house. This is so they are counted as repairs and not improvements on the property.

I think this is the simplest way however I would like to know what others have done.

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Reply: 1.1
From: Anony Mouse

Generally speaking you cannot claim any tax deductions until settlement takes place and you take title to the property. The income from the tenant of the seller is not yours to offset expenses against.
However its best if you seek professional advice.
"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"
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Reply: 1.1.1
From: Land Holdings

I did mean my own tenant AFTER settlement if that was ambiguous.

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Reply: 2
From: D L

Any repairs or improvements done prior to the property being tenanted would be classed as capital expenses, and therefore added to the capital base cost of the property. They are not deductible as such, however if/when you sell the property they will be deducted off your "profit" for capital gains tax calculations.

Even improvements done within a few months of the property being settled are often scrutinized by the tax department and deemed as "Improvements" rather than repairs.

I would suggest you double check with an accountant to clarify this, however this is my understanding.

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Reply: 2.1
From: Dale Gatherum-Goss


Whether the costs are incurred before settlement or after is irrelevant. This is because your intention is to produce an income from the property and thus the expenses are still taken into consideration one way or another.

Now, repairs undertaken in the first year of ownership are not normally tax deductible because the tax office argue that you are merely improving the property on what you bought rather than repairing any damage done whilst you are the owner.

However, you can depreciate these costs and still get a tax advantage over a period of time, and, you might be able to convince a QS to include the costs in the schedule under immediate deductions anyway depending upon the amount spent. Worth a try!!

I hope that this helps.

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Reply: 2.1.1
From: Sim' Hampel

Thanks for that Dale... good to get some "knowledgable" information there ;-)

Now for my non-professional backup to Dale's comments... THIS INFORMATION IS ALL IN THE ATO HANDBOOK ON RENTAL PROPERTIES !!!!!!

or page 9 of the PDF file at

Do yourself a favour... download it... print it out... READ IT !!!

... and then go and ask YOUR accountant about it and how it applies to YOUR situation.

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