G'day all…quick question
My wife and I are planning on moving into one of our IP's for 2-3 weeks to paint the inside and tidy up the kitchen a bit (paint drawers and put new handles on). Just wondering whether there are any tax implications, good or bad, if we do this and get the power and water on under our names. We will still have the property advertised for rent. We would move in when the current lease expires and the property is in Tasmania. Any help appreciated. Cheerstugger
Are you using one of your other properties as your PPOR?
See page 10 of
http://www.ato.gov.au/download.asp?file=/content/downloads/IND00191817n17290609.pdf
First two lines of Rental expenses
Labelled as page 7 in the document but page 10 in acrobat reader.
You can claim a deduction blah blah blah ……………………………………………………
………………………………………………………………………………………………………………
(not stating the whole two lines in case it is a breach of copyright of ATO web site.well were are building a house at the moment but we won't be in it until about 1 month after when we wanted to temporarily be in our IP. We are currently living in the NT teaching and being accommodated by the government rent free…hope this helps
cheerstugger
For your expenses to remain deductible the IP must be 'available for rent' (ie genuinely marketed which sounds like you will be) or actually rented out, during the renovation time. This ensures you do not need to do apportionment of any expenses at financial year end.
Fletcher Tax Accountants
http://www.fletchertaxaccountants.com.auThanks fletcher… does that mean I can claim on the cost to get the power and water on? Cheers
tuggerI think it can also boil down to
1) are you improving the house to make it rentable or more rent (then I think this goes as capex)
2) if your restoring then it's an expense.So if your not advertising before the lease is up and are waiting to paint etc.. it may be considered option 1.
If your moving to the house (cause it's too far away from your PPoR) then you maybe able to charge travel cost, living away from home etc..
Speak to your accountant to make sure.
Repairs to a newly acquire IP are not deductible but repairs resulting from rental use are.
I would argue that the power bills during renovation would be a deduction as they are needed to actively market and rent out the IP. (Not so much water though!?) And I would assume this will be very minimal amount being as it is for 2/3 weeks.
You could even fit it all in within 1 week during daylight hours and not turn on the power nor water. But you need water as you yourself want to live there. … So perhaps skip claiming both of these entirely?
Be careful between differentiating between capital expenditure and simple repairs. Repairs are deductible whilst capital expenditure add to your cost base.
Fletcher Tax Accountants
http://www.fletchertaxaccountants.com.auPlease note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.Hi Fletchertax….
So if I bought a IP (under a company name) from an owner occupier and it needed structural repairs due to white ant damage and I threw in some cosmetic renos ie paint, carpet, kitchen benches etc, then quote
" Repairs to a newly acquire IP are not deductible but repairs resulting from rental use are" – "Be careful between differentiating between capital expenditure and simple repairs. Repairs are deductible whilst capital expenditure add to your cost base"
How do claim the above expenses? Is it all capital expenditure?
Karen
Hi tuggerwaugh,
For repair expenses to be tax deductible, it needs to have nexus to the revenue generated.
While the property does not need to rented out at the time of the repair, there are two factors you need to satisfy in order to claim the repair expense.
1, Has the property previously been rented out or been made available for rental purposes.
2, If so, is it in the same financial year as your intended repair work?If both answers are yes , then you should be able to claim the repair expenses.
With regards to utility connection and consumption. Again, there needs to be nexus to the revenue generated.
If the whole purpose of connecting the utilities is for renovation, in order to restore the rental property to the original state. Then the whole amount can be deducted. I suspect that you will also be using it for personal reasons, as you will be living there for 2-3 weeks. You may consider apportionment.As FletcherTax mentioned, you need to be careful when distinguishing repair (to restore it back to original/usable state) and capital improvement (improvement over and beyond original state). This is a very comment mistaken when preparing tax return.
Hope that helps
Karen,
When you say “under a company name”, what do you mean?
The rental property was purchased under a PTY LTD structure? or merely a sole trader ABN number?Thanks
KennyHi Kenny,
Purchased under a PTY LTD Structure
Karen
Hi Karen,
As mentioned before, the following expenses are capital, or of a capital nature, and are not deductible as repair expenses:
– replacement of an entire structure or unit of property (such as a complete fence or building, a stove, kitchen cupboards or refrigerator)
– improvements, renovations, extensions and alterations, and
– initial repairs – for example, in remedying defects, damage or deterioration that existed at the date you acquired the property.As they are capital in nature, you should be able to claim capital works deductions for these expenses.
You can refer to Fletcher Tax’s PDF link:
http://www.ato.gov.au/content/downloads/IND00191817n17290609.pdf
Page 19 for further information about capital works deductions.Depending on the size of your company, you may be eligible for the small business concessions. To determine eligibility, go to:
http://www.ato.gov.au/businesses/content.asp?doc=/content/00106797.htm&page=2&H2
For further information, refer to Concessions for small business entities (NAT 71874).If eligible, you will be entitled to the following concessions:
http://www.ato.gov.au/businesses/content.asp?doc=/content/00106797.htm&page=1&H1Cheers,
KennyWow.. What great information. Many thanks!
Thanks Kenny…good work on those answers. Cheers
tugger
Thanks Kenny – I think you've covered all bases.
Hi all
Speaking of tax implications, I am thinking of buying a serviced apartment/room in an Ibis Hotel in Melbourne. (The return is very good).
The property is leased out for nine more years pursuant to a commercial lease to the company operating the hotel.
Does anyone know if GST is payable on the rental in such circumstances?. (I would be the lessor in my personal name, and I am not otherwise carrying on an enterprise or registered for GST).
Many thanks, John
Hi John,
What do you mean by – if GST is payable on the "rental"?
1, If you mean is GST payable when purchasing the rental property, that will depend on vendor (if they are a business registered with GST), but the agreed purchase price will be GST inclusive.
2, If you mean is GST payable when you rent it to the hotel operator, then no, since you are not operating a business or registered for GST. ie the hotel operator will not be required to pay GST on the rent to you, and consequently, they will not be able to claim back the GST from the ATO.
3, If you mean is GST payabe when people stay at ibis, then yes, most likely, they will be reqired to pay GST for the accommodation.Cheers,
KennyComments posted on this forum are of general nature. Please obtain appropriate professional advice.
Hi Kenny,
This is following on from your reply a few days ago regarding whether GST is payable on serviced apartment.
I am a sole trader with ABN and GST registered. Does it mean that when I purchase a serviced apartment:
– I am buying it under my ABN?
– Have I got the option to buy it under my personal name?
– If under ABN, will I have to pay GST in the purchasing cost, because I am GST registered?
– If I purchased it as GST registered purchaser, do I have to charge GST to the hotel management?Would your answers be different if were to purchase a standard residential investment property? Can I purchase it under my personal name or does it have to be under ABN and pay GST?
I posted the following questions before, but haven't yet received any reply. Do you know of any good source where I can read more about:
– pros and cons of investing in serviced apartments
– why do they tend to be cheaper than the nearby apartments of equivalent size and age? However, I do note the council and water rates of serviced apartment are quite high.
– are serviced apartments easy to resell?
– what happen at the end of the 5 year lease? Do the hotel operators force the rental yield down because the apartment is getting older? Do they refuse to extend the lease, forcing the owner to accept a lower rental?Thank you.
Jenny
The rental property was purchased under a PTY LTD structure? or merely a sole trader ABN number?Hi Jenny,
When you apply for an ABN, you have essentially created a different entity to yourself. However, since it is a Sole Trader, you don’t have the same treatment as a partnership or a Company. I won’t go into that, but you will be able to purchase the property under your name, or under the ABN. The difference is, under your name, if it is a negative gearing property, you will be entitled to claim the loss against your income. Where as under your sole trader ABN, it’s harder (you will need to pass tests), but it is easier to claim other tax deductions you otherwise would not be able to as an individual.
To answer your questions:
1&2, Not necessarily, you can buy it under your name as well.
3, Depends on the vendor. Of course you would prefer if the vendor is a business registered with GST. In that case, you will have to pay GST, but you can claim that back on your BAS.
4, Yes, similar to the hotel operator charges GST to people staying at the hotel. And you have to remit the GST back to the ATO via BAS.No, the answers will not be different. The only difference is the vendor. If the vendor is not a business registered with GST, they will not be charging you with GST on the purchase.
No, it can be under personal name.I’m not qualified to answer your questions about service apartments. But here’s my opinion:
Pros:
High rental return
Potentially guaranteed return (depending on lease agreement)Cons:
Hard to re-sell (only appealing to a portion of the market – investors)
Cannot be owner occupied
risk of high maintenance fee
low capital appreciation – you will see they probably have minimal growth2, see the cons above.
3, No, not appealing to the mass market.
4, Not sure. They are a serviced apartment, they are more inclined to resign the lease, otherwise they can’t produce income. However, the property is of no use to you, as there will be restriction on the usage of the property.Your questions are not simple ones. My recommendation is to find yourself a knowledgeable and proactive accountant, as opposed to relying on the bits and pieces on a public forum. I know it’s a little bit costly, and sometimes it’s a bit hard to ask the right questions. However, it will save you a lot of tears, time and money at the end!
Thanks
KennyPlease note that comments posted on this forum are of general nature. Please obtain appropriate professional advice before taking action.
Thanks Kenny,
I understand all advices in these forums are of general nature.
Getting back to the ABN. My personal name is identical to my ABN name as a sole trader. So how do I note on the contract of sale that I purchase the property as a sole trader (I don't have a business trading name)? Thanks.
Jenny
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