Tax deductible insulation?

[Risky Business]

G'day all,

Just a couple of questions.

I'm about to take the government up on their free/rebated insulation.

I am just wondering if the $1000 worth of insulation is able to be depreciated over 40 years?

I have a PPOR which has been previously rented and is likely to be rented again. If I have the insulation installed by the 31 June and pay the fees, will this increase my cost base as I have actually paid the costs prior to receiving the rebate?

Are there any benefits tax wise of actually paying for the insulation out of my own money rather than waiting till the 1st July? As of the 1st July, it is likely that the government will pick up my insulation bills without me having to outlay any money.

Thanks in advance for your thoughts.

 

[Rob G.]

1) If you pay ...

Recouped expenditure cannot form part of the cost base for CGT, s.110-25(8). So when you receive the rebate it comes off the cost base.

Insulation batts form part of the settings (TR 2004/16) and so will be written off over 40 years (usually) under Division 43 when you convert to an IP.

Recoupments relating to Division 43 deductions are not assessable income according to the table in s.20-30.

But again the CGT cost base is reduced by any Div 43 depreciation deductions claimed or claimable.

2) If you wait and have the Government pay ... I think (you will need to check) ...

You did not incur any expenditure, therefore no depreciation deductions for capital works since there was no "cost".

How it relates to CGT is not totally clear to me ...

If it fits the definition of a recoupment for CGT then it will still come off the cost base. Recoupment can be in a form other than money for this provision.

Cheers,

Rob

 

[Risky Business]

Thanks for the response Rob,

I had a read through the references that you made but unfortunately couldn't find s.110-25(8). I must be blind because my link went from 110-25 (6) to 110-25(12)

I'll run your answers back to you to make sure that I am not just interpreting the answers the way that I want to.

If I pay the money, my cost base for my PPOR will remain the same, until it becomes an IP. At this point I will make deductions as per division 43. My cost base however will be reduced by these deductions.

If I pay the money for my IP, there will be no increase in my cost base, but deductions at 2.5% will occur as per division 43 as well as a reduced cost base for CGT.

If the government pays, then there are no depreciation benefits?
Would this mean that if I won a competition to have my bathroom refurbished (am no such winner) and outlaid no money, would that mean that I could not depreciate the new assets because I did not incur that cost?

I only have a basic knowledge of depreciation, but that would be contradictory to the info I had previously jammed into my head.

Thanks for your help Rob.

 

[Rob G.]

Thanks for the response Rob,

I had a read through the references that you made but unfortunately couldn't find s.110-25(8). I must be blind because my link went from 110-25 (6) to 110-25(12)

Typo - 4th element of cost initially, but recoupment reduced s.110-45(3)

I'll run your answers back to you to make sure that I am not just interpreting the answers the way that I want to.

If I pay the money, my cost base for my PPOR will remain the same, until it becomes an IP. At this point I will make deductions as per division 43. My cost base however will be reduced by these deductions.

Cost base goes up initially. Goes down when you receive the rebate as per s.110-45(3).

If I pay the money for my IP, there will be no increase in my cost base, but deductions at 2.5% will occur as per division 43 as well as a reduced cost base for CGT.

Cost base will *also* go down by any Div 43 deductions as well.

If the government pays, then there are no depreciation benefits?
Would this mean that if I won a competition to have my bathroom refurbished (am no such winner) and outlaid no money, would that mean that I could not depreciate the new assets because I did not incur that cost?

Whilst prizes are not assessable for CGT s.118-37(1)(c), the CGT concept of a recoupment is very broad. So if there was an association with home ownership then it might get caught.

I only have a basic knowledge of depreciation, but that would be contradictory to the info I had previously jammed into my head.

Div 43 is not "depreciation" in the terms of plant & equipment, and any deductions claimed are deemed a recoupment of CGT cost base.

Thanks for your help Rob.

It might still pay to give the ATO a ring, doesn't cost much except time waiting !

Cheers,

Rob

 

[Risky Business]

Thanks for sharing your knowledge Rob.

I gave the ATO a call and they stated that they'd require a PBR to assess the matter. Consultant advised me that they had nothing on file to assist me.

I may go the the effort to make application. The depreciation benefits are quite small for the insulation, but it will likely shed light to greater rebates, solar power, rain tanks etc.

Cheers

 

[Eternal_learner]

Low value pool for insulation ?

I've been lurking for years now and have always managed to find the answers to my questions by searching. Well I'm out of the shadows now

I'm currently arranging insulation quotes for a rental property in Brisbane and with all the focus around the Gov rebate it would appear unlikely I'll manage to have it installed without an out of pocket expense. This being the case I'm just working out how the balance of the cost will be treated for taxation.

The scenario is that the out of pocket expense is less than $1000 eg $1700 total cost minus $1000 rebate meaning I pay $700. Can this be added to the low value pool and depreciate at 18.5% first year, and 37.5% for subsequents? Or does it have to be added to the capital works schedule and therefore depreciate over 25 years? Probably doesn't make all that much difference however I'm always inclined to analyse these things to death before making a decision Thanks in advance

 

[Propertunity]

Probably doesn't make all that much difference however I'm always inclined to analyse these things to death before making a decision Thanks in advance

Eternal_analyser, The $1,000 is free money. The $1,000 freee money will always be greater than the tax treatment of the $700 out-of-pockets you may have.

Did I mention the $1,000 was free?

 

[Eternal_learner]

Propertunity, it's not so much if I'll take advantage of the rebate - it's which type of insulation to go with.
Minimum R3.0 values or R3.5
Batts in Fibreglass, Polyester, Earthwool
Pump in Cellulose or Wool blend
EcoFoil or Bubble wrap type foils that meet the minimum R requirements
And then the Ecological impacts of your choice (although I can't really be accused of being overly concerned with this in the past)

After making a recent non fibreglass decision on my own place I'd be a bit hypocritical to choose to install them in my rental. The shortfall therefore ranges from $400 (fibreglass) to $1800 for R3.5 Polyester. The most likely is something very close to $1k out of pocket and if I can depreciate them down quicker under a low value pool then I'll be able to convince myself that little bit extra is a worthwhile investment.......

 

[WillG]

The cost of the insulation includes a capital component and a labor component. I am not sure if the labor component is classed as an expense and the cost of the insulation treated as capital and depreciated at 2.5% over 40 years. Do any of the accountants know how this works?