Tax time, IP, at the moment a holiday rental

[GlennG]

Hi everyone

I've started looking through ATO documents and looking on line, not much success so far so I thought I'd see if anyone here would help.

I'm keen that we do everything right tax-wise!

We bought an IP, settling December 1st 2009.
We then visited a few weekends, taking up garage sale stuff etc to set the place up as a holiday rental.
Signed up with Estate Agent to manage the place in early March 2010
Was advertised online from about start of April 2010.

Has always been available for rent since then to end of tax year, so I'm going to say 3 months.
No rental income in that period. But was always available as Estate Agent knows that we will only visit if not needed by anyone else.

So for tax purposes
expenses such as Stamp Duty, interest on loan - calculate from Dec1 2009? Over 5 years?

For expenses related to renting out, calculate based on being available for 3 months?

If the holiday rental doesn't work out then we'll switch it to 1 year lease at some point which will make the tax thing even more complicated in the short term, I guess!

Any general ideas on this type of thing, or helpful links would be much appreciated, many thanks

 

[coastymike]

Stamp Duty on acquisition of the property or do you mean stamp duty on the loan ? Stamp Duty on loan will be a borrowing cost and claimable over 5 years or the life of the loan whichever is the least.

Taxation Ruling TR 2004/4 examines the deductibility of interest prior to the commencement of your income earning activity.

 

[marg4000]

You can claim expenses from the time it was available for rent, which from what you say seems to be early April, when it was first advertised.

You will have to keep a diary of the times you use it. The fact that it was available for rent and not rented does not negate the fact that you are using it.

For future years you can claim the expenses when you are not using it. If you stay for 65 nights, then you can claim 300/365 ths of the expenses. But be careful if you use it at peak time. You cannot own a ski lodge, use it for June, July and August, and still claim 3/4 of the expenses. Likewise a beach house that is not available for peak periods.
Marg

 

[GlennG]

Stamp Duty on acquisition of the property or do you mean stamp duty on the loan ? Stamp Duty on loan will be a borrowing cost and claimable over 5 years or the life of the loan whichever is the least.

Taxation Ruling TR 2004/4 examines the deductibility of interest prior to the commencement of your income earning activity.

Yes, on the loan
Is it very little nowadays in NSW? On my Statement I have 'Loan Stamp Duty' = -$1501.00
then 'Refund Gov Fees & Charges' $1311

For things depreciating over 5 years would I calculate the depreciation only over 1/4 of a year (being period available for rent, April-end June) and then reduce this by a factor depending upon how many days we stayed in the place during that 3 months? Many thanks coastymike

 

[GlennG]

You can claim expenses from the time it was available for rent, which from what you say seems to be early April, when it was first advertised.

You will have to keep a diary of the times you use it. The fact that it was available for rent and not rented does not negate the fact that you are using it.

For future years you can claim the expenses when you are not using it. If you stay for 65 nights, then you can claim 300/365 ths of the expenses. But be careful if you use it at peak time. You cannot own a ski lodge, use it for June, July and August, and still claim 3/4 of the expenses. Likewise a beach house that is not available for peak periods.
Marg

Thanks Marg
So if we went to the property to clean up after it's been rented out, for each day it would reduce by 1/365 the claim? But then you could claim expenses for making that trip to inspect/clean property?

 

[marg4000]

If the trip is specifically for cleaning, then the expenses should be deductible. I doubt you could claim more than the cleaning fee charged for the rental. Cleaning doesn't take that long to require an overnight stay.

But if you stay there overnight then you are using the property, it is not available for rent that night so you must include it in personal use.

But the ATO aren't stupid, I don't think you could have a holiday rental in Cairns if you live in Brisbane and expect the ATO to allow you to claim the expenses of flying up to clean it each fortnight.
Marg

 

[GlennG]

Taxation Ruling TR 2004/4 examines the deductibility of interest prior to the commencement of your income earning activity.

Thanks coastymike, I've checked that ruling

My current understanding (as a newbie)

Cost base of IP for Capital Gains - Sale price plus Conveyancing fees plus Stamp Duty plus reports such as pest report

Uncertain - necessary things such as upgrade of electrical wiring prior to making place available for rent



Deductible over a number of years: Loan establishment fee, stamp duty on mortgage

Uncertain - Air conditioner bought before place was available for renting - depreciate over 5 years.
Toaster, washing machine, stove etc - depreciate, immediate deduction for things less than $300 - does it matter whether bought before or after place was available for renting?


Tax Deductible Expenses
Interest on loan, bank charges, rates, insurance - claim from time IP was bought.

Uncertain - Other expenses such as repairs and maintenance - claim from when place was advertised for rental - so 3 months of tax year, but reduce by the number of nights that we stayed there e.g 6 for that period

Can anyone correct the bits that I've got wrong? Many thanks