Timing of improvements to new IP

[GreenGoblin]

Hi all

We settle on a new IP in a few days (still looking for a tenant, though ). We've already paid for a termite treatment (live termites in the grounds, though not the house; we couldn't delay treatment until after settlement). We'll be adding a dishwasher and one or two air conditioners after settlement, as we feel these are necessary, given it's a nice house in a good suburb.

I'm not sure how the termite treatment would be classified. The previous termite barrier is 7 or 8 years old, so would the new barrier be considered a 'repair' or an improvement? The treatment was also done pre-settlement, so before the property was able to start producing income (i.e. lettable to a tenant).

The dishwasher and air conditioners are improvements too, as they weren't previously there. Given this, does it matter if they're installed and paid for after settlement, but before we have a tenant in place, or does having a tenant in the property change anything from a tax perspective?

Thanks in advance,
GG

 

[BMT Tax Depreciation]

I'm not sure how the termite treatment would be classified. The previous termite barrier is 7 or 8 years old, so would the new barrier be considered a 'repair' or an improvement? The treatment was also done pre-settlement, so before the property was able to start producing income (i.e. lettable to a tenant).

There might be some depreciation in this (the barrier(s)) but other factors involved would normally be a maintenance cost. I'd get an accountant's advice but I don't think you'll be able to claim this as it was prior to the property being tenanted.

The dishwasher and air conditioners are improvements too, as they weren't previously there. Given this, does it matter if they're installed and paid for after settlement, but before we have a tenant in place, or does having a tenant in the property change anything from a tax perspective?

These are depreciable items regardless of when they were installed or whether there were tenants there.

 

[Paul@PFI]

I agree.

The dishwasher and AC (incl costs to install) all depreciable so the deduction will span the period of tenancy. However the barrier is a capital expense. I looked into whether the EPA deductions (environmental protection) might cover it.

No luck. It specifically excludes bldg. improvements. Its more for disposal of the former barrier if it is toxic. So... Its non-deductible and will just add to the CGT cost base as an improvement.


The EPA deduction is often overlooked...Good for asbestos removal etc...Only don't try to remove lead paint under it while doing a reno.

 

[GreenGoblin]

Thank you very much, Chris and Paul.