Hi,
Can someone clarify for me.I just bought an IP for my SMSF and it has been settled. I then had to put $4000 worth Curtain/Blinds in and pay separately from the original settlement. Does this count as improvement or a genuine deductable expense.?
As I understand it , you cnnot improve a property withn SMSF. But what is improvement?
Regards,
Read between the lines |you will be replacing like for like|.
Actually, there were no blinds etc.. in the unit … It is brand new ,just completed. so there were no window coverings to start with. Thats why Im confused. I understnd if I replaced old for new due to damage /wear etc… But there were none??
The ATO’s definition of a repair or improvement has evolved over time. It used to be “like for like” was a repair, these days they’re a little more hard-line about it:
ATO wrote:If you have to replace something identifiable as a separate item of capital equipment (such as a complete fence or building, a stove, kitchen cupboards or a refrigerator) you have not carried out a repair. This means you cannot claim the entire replacement cost you incurred in the year you incurred it. However, you may be able to claim the cost as a capital works deduction or a deduction for decline in value.ie: if you replace an item in its entirety, then it cannot be claimed in full, in the year of expense, as a repair.
have a read:
Repairs:
http://www.ato.gov.au/individuals/content.asp?doc=/content/00183233.htm
Capital:
http://www.ato.gov.au/individuals/content.asp?doc=/content/00183243.htmAlso.. even if you could argue that it was a repair, then in your case you would not be able to claim it, as you wouldn’t be performing repairs which were required as a result of the property being rented.
The SMSF can certainly improve the property with its own funds. If you contribute your own funds to improvements, they will need to be considered to be personal superannuation contributions.
The fact that the blinds are a “capital expense” isn’t really bad news. It just means that the cost needs to be claimed over time (probably 8 years) rather than all in one go. The SMSF will still get the full deduction, but just over time, rather than in 1 lump sum.
http://www.ato.gov.au/individuals/content.asp?doc=/content/00131327.htm
from ato
Initial repairs to rectify damage, defects or deterioration that existed at the time of purchasing a property are capital expenditureThis means if you repair an item that was in a poor state when you purchased the property to beyond the state it was purchased at it is considered an improvement.
This would also cover missing blinds at purchase of property being replaced.
TR 97/23
Cheers,
Rob
Thanks guys… I have lookedat TR 97/23
And it maybe that the Window coverings maybe an 'initial repair' as the proprty is not 'suitable for use' for income purposes.
any thoughts on my logic….I also had to put a TV antenna in after purchase, I would consider this to, to be an expense as an original repair??
Exerpt from Tax Ruling 97/23
Initial repairs are of a capital nature and not deductible
125. A repair after acquisition of property is an 'initial repair' if repair was due when the property was acquired, in the sense that there was a need for repair to restore or maintain the property's efficiency of function. In other words, the property was neither in good order when it was acquired nor suitable for use for income purposes in the way intended.
126. The leading Australian case in this area is the High Court decision in the Thomas case. There, Windeyer J held that the costs of repairing a roof, guttering, wall, basement floor and wooden floor and painting a building in the year of income it was acquired was expenditure of a capital nature.
127. His Honour said (at 115 CLR 72; 14 ATD 87):
'Expenditure upon repairs is properly attributable to revenue account when the repairs are for the maintenance of an income-producing capital asset. Maintenance involves the periodic repair of defects that are the result of normal wear and tear in operation. It is an expense of a revenue nature when it is to repair defects arising from the operations of the person who incurs it. But if when a thing is bought for use as a capital asset in the buyer's business it is not in good order and suitable for use in the way intended, the cost of putting it in order suitable for use is part of the cost of its acquisition, not a cost of its maintenance . The decision of the Court of Session in Law Shipping Co. Ltd. v. Inland Revenue Commissioners, [(1923) 12 TC 621] is commonly cited as authority for that proposition. The principle is obvious without the need for any supporting authority.' (emphasis added)
128. His Honour made it clear that it is immaterial whether the taxpayer knew of the defects or whether the purchase price was affected by them. Windeyer J said (at 115 CLR 74; 14 ATD 88):
'It seems to me immaterial that when the taxpayer acquired the building it did not know of some of its defects … . That means only that the cost of obtaining an asset suitable for its purpose was greater than had been expected.'
They’re both deductible capital items, and can be depreciated.
In the case of the antenna, its likely less than $1000, and could therefore be allocated to a low value pool.
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