Hi all,
I have bought a place that needs a little work. I intend to do the work straight away. Should I get a QS report before or after the work?I am supposing after. Should it be immediately after?
Any comments, tricks, details of any sort appreciated.
MarkyMark
I can give a comment, but no tricks – the ATO are going to be carrying out lots of audits this year and I would advise against trying to be tricky.
It sort of depends on what you’re planning to do and the age of the property . If you’re throwing out carpets, blinds, stove etc, you may be able to claim the residual depreciation on those items when you dispose of them. You could have a schedule done now, keep those items out of the Low Value Pool, and ‘dispose’ of them. Then when you do any new work you’ll have receipts your accountant can work with. You should run this past your accountant.
If you’re doing more of a tart up, I would wait till you’re finished and get a QS in. Bear in mind you won’t be able to claim depreciation on your own labour – that’s one of those tricks the ATO are a wake up to.
Remember also that painting prior to initial letting, for instance, is depreciable at only 2.5%pa. Whereas if painting is carried out as a ‘repair’, it is 100% deductible. Similarly, ripping up carpets and polishing floors can be viewed as a repair. Of course, the place would need to be tenanted for a while before you can legitimately claim for any repairs.
My advice to our clients is to get tenants in (Sugar Soap can work wonders on tired paint) for a while and then after 6 months or so see what they can do as legitimate repairs.
Hope that helps.
ScottSomething else that occurred to me. If you were to strictly toe the ATO line, there is an argument that anything you do before renting a property out constitutes a ‘cost of aquisition’ and as such is only claimable in that it can increase your cost base upon sale for the calculation of CGT. It’s a bit of a grey area and could be argued, but any argument with the ATO is to be avoided. Best try and save all work possible till after the property has been tenanted for a while (even if it means getting slightly lower rent for 6 months), or get postdated receipts for your accountant – oops, that would be a ‘trick’.
Hi depreciator,
Thanks for the response. I think that maybe I should have used the word ‘Technique’ rather than ‘trick’. There’s way too much to lose by doing things that are illegal.You have raised some things to think about.
The property already has a tenant, but no lease currently exists. The tenant is paying well below the going rate for rent (as it is a family member of the vendor) but has agreed to a rent increase. Offcourse I will secure him with lease etc if he is suitable.
– The work that I mentioned could definitely be viewed as repair work. Basically, these are items that have been pointed out in the building inspection. For example one of the gutters is rusted through and paint is needed (as apposed to “that would be nice”)
You said:
the place would need to be tenanted for a while before you can legitimately claim for any repairs.Because there is a tenant does that satisfy this requirement?
One other thing,
Can you suggest any really good resources for these sorts of issues? I will do a search myself anyway.Thanks again.
Morning MarkyMark,
In answer to your questions:Question 1
You said:
the place would need to be tenanted for a while before you can legitimately claim for any repairs.
Because there is a tenant does that satisfy this requirement?Nope. You need to own the property and have it rented (or available for rent) for a while before you can claim anything as a repair. Six months would be a safe period depending on the extent of work you do.
Question 2
One other thing,
Can you suggest any really good resources for these sorts of issues? I will do a search myself anyway.I’d be your best resource. There is a fair bit of stuff on the ATO site, but finding it isn’t always easy. The Master Tax Guide is okay, but it’s a 2,000 page book and it will cost you over $100. You could try the AIQS – Australian Institute of Quantity Surveyors – but they don’t have a great handle on tax. If you post a question on this forum and I’m travelling and don’t see it, send me an e-mail. I get a hundred or so a day but I always respond to them.
It’s only my opinion and I’ll probably be shot down in flames in minutes by someone here, but if there is a tenant in place who has agreed to a rent increase, I would leave them there, even if they’re still paying a bit below market rent. Let’s say you kick them out and then spend 2 weeks and $4,000 tarting the place up. Then it takes a few weeks to find another tenant. It’s going to take you a long time to make up the loss from a rental increase.
Scott
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