We are planning a reno on a IP. we also want to sell it sometime in 3-5 years. QUESTION IS: do we do reno and get increased rent or hold off doing reno until we sell it due to CGT issues? Are there CGT issues we need to consider when making such a decision?
Snowflake
i’d imagine capital gains tax is calculated at the time of sale.
cheers
brahms
Purveyor of Fine Finances
aka Mortgage Broker BrisbaneIf you do the reno and then rent out the property the reno will be classified as an improvement and depreciation can be claimed over the effective life of the items. If you do a reno at the end the improvement costs can be added to your cost base. This means that your overall cgt will be reduced by the costs of improvements. However under tax law you can claim depreciation or repairs or an increased cost base but not both depreciation/repairs and increased capital cost base improvements. It is one or the other !!
Large repairs will be classified as improvements – like replacing a whole roof or replacing the whole carpet. Any repair that is an improvement over the state of an item at time of purchase will be deemed as an improvement by the ATO.
This is general advice you should consult a good accountant as some repairs can be deemed as an improvement- this is a grey area (not black or white) of Tax law and also check http://www.ato.gov.au to see if there are any guides from the tax office on this subject.
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