Urgent Query - Need Some Replies Today, Please

[Harriet]

Dear All,

Well, at last, we have found our first IP. It's kind of an unusual situation, actually. I am buying the house from my parents, through a private sale. We have agreed on a price, and I'm now in the process of setting up our family trust to buy it. The sale will definitely go ahead, but because it's a family thing, we haven't rushed to get the contracts etc organised. The property will be negatively geared.

The house is in good condition, but has three rather large trees that need to be removed. The council has just given us permission to do this. We have this weekend spare, and thought we might get stuck into it.

BUT . . . my question is this. There will obviously be some expenses involved in removing the trees, like rubbish-tip fees and whatever else. And also obviously, we want to be able to put these expenses towards our negative gearing. IS IT POSSIBLE TO DO THIS IF THE PROPERTY HAS NOT YET CHANGED HANDS - INDEED, IF WE HAVEN'T EVEN SIGHTED THE CONTRACT?

I'd love to hear your opinions on this ASAP. The house is 4 hours away, and I don't want to make the trip unless I'm sure we can claim those expenses.

Thanks all,

Harriet

 

[JoannaK]

IS IT POSSIBLE TO DO THIS IF THE PROPERTY HAS NOT YET CHANGED HANDS - INDEED, IF WE HAVEN'T EVEN SIGHTED THE CONTRACT?

I'm fairly confident that you'll find that the answer to this is No.

Also, I don't even think you'd be able to claim tree removal for negative gearing purposes.

Someone more knowledgable in this area will clarify for you.

 

[Gill Bates]

Im not a expert.

I beleive this situation coulds be likened to a situation where a house is purchased and it needs some immediate maintance - like painting or in this case it could be said to be garden maintance.

My understanding is the tax department says it is a capital expense. There reason is something like that the purchase price would take into account that the property needed this immediate maintance. From memory the question about inmmediate maintance or very soon - like in 1st 12 months is in ATO guidlines.

 

[Corsa]

Extracted from TR97/23

Expenditure incurred by a taxpayer on repairs to property that the taxpayer does not own

141. It is not a specific requirement of section 25-10, unlike section 42-15, that property be owned by the taxpayer.

142. Entitlement to a deduction under section 25-10 for expenditure incurred by a taxpayer for repairs to property depends on whether the taxpayer held or used the property for income purposes.

143. A lessee of premises, or a person granted a licence to use premises, is entitled to a deduction under section 25-10 for repair expenditure if the lessee or licensee meets these requirements, i.e., holds, or uses the premises for income purposes, even though he or she does not own the premises.

This means that you can still claim deductions even though you havent settled on the property but it must be available for rent, ie place an ad in the paper to rent out or a sign out the front of the house and this would suffice. In terms of the Tree Removal, probably Capital in nature. Garden Maintance is normally an acceptable rental deduction.

Hope this helps

Corsa

 

[sbe]

As it's before/during purchase process, it'll be Capital in nature.

ie. Can't claim it as an expense, but you can factor it in for CGT purposes should you ever sell.

Sorry.

 

[Splinter Wood]

You may also want to clarify in the contract (when you get to it) that all income and expenses - such as maintenance etc apply from a specific date (i.e. NOW !) would be yours - not your parents.

You could draft a simple agreement to this effect now and have all parties sign and have it 'witnessed' by someone outside your family.

SW