Hi,
I have just bought an IP.
I have permission to reno prior to settlement ( floors, paint, landscaping and new kitchen)… which means I have to pay home insurance and reno costs before settlement.What can I claim during this period?
Also, can I claim Pest and Building inspections?
Cheers
AdrianHi Adrian,
I’m not an accountant, so do check my thoughts with the right person – but here is what I believe to be true.Purchase Costs are allowed to be claimed over a 5 year period – so, not as a lump sum. If you were to sell again in the future, any unclaimed amounts remaining can be cleared at that time. I think Building and Pest would come under Purchase Costs, but could be wrong.
I would think any reno items would be difficult to claim as “maintenance” (you are not renting it yet) and would likely be added on to the Capital Cost of the property. You effectively “get that back” via a higher cost base, so less CGT on eventual sale. I think the ATO presumes that you would have paid less to purchase a house needing a renovation, and any costs to do so become part of the Capital (along with an expected lift in Equity, yes??)
But then, you DO get some payback in Depreciation, and the new kitchen items would boost that total, allowing you to claim 37% or so in the first year as a tax deduction. So, some relief there….
Hopefully an early revaluation showing Equity growth will allow you to borrow back YOUR money (plus a bunch more hopefully) thus effectively providing another Deposit to go do it all again.
Anyway, do check my answers with your accountant or other qualified adviser – or maybe other posters can,
Benny
Make sure that early access condition is water tight in the contract. A lot of bad scenarios can arise from early access, often they don’t but if they do you want to make sure you are protected by your contract special clauses conditions.
Short answer is no, renovations done before a tenancy will be treated as capital. Must then apply depreciation. But your depreciation would be a bit higher now due to the work on the property. Ie your high value items like stoves etc, faster rates of depreciation.
Make sure you get a quantity survey. (BMT are the bigger player) specify you want a scrapping report. Which can bring instant tax write offs.The ato don’t provide sufficient information to answer if there is a minimum rental period before some
Items could be classed as maintenance(replacing like for like or like for equivalent. Ie you rent for one month then come back in. If you replaced a cracked shower screen(old shower screens with the wire mesh for example) with a new shower (safety glass) that would be maintenance.Brand new kitchen is capital.
Fix the existing stove – maintenance
Gardening – maintenance
Etc.
Look if up if you want to see more examples of maintenance vs capital.Note that if you do sell. Your capital cost for your house would be higher.
Ie you buy at 200k
Stamp 10k
Reno 20kYour capital cost is now 230k.
So if you sell years later for 300k only 70k capital gain.
Btw those bad scenarios
– can’t settle, you just did the guy a favor and fixed up his house for him
– not finished the renovation and the valuer comes out because you are trying to
Borrow 95% with LMI, so they always request to come into the property . Meanwhile you haven’t finished and you have no kitchen and no bathroom—- valuation will come back at land value and you could be up for potentially 100s thousands to settle.
– owner dies on you. (Happens more often then you think, happened to me personally as well). Can stuff your plans up if your conditions are not water tight.
– safer to borrow at 80%, then often the bank will do a desktop (on the computer) Val or a “driveby” and not enter the property . If you haven’t finished the Reno. Make sure you PUT BLINDS up. So the valuer cannot see in. Use some
Common sense.
– early access and the owners stuff is still in their. Make sure you have it that they have to
Give the vacant possession by say 2-4 days after you get your early access.
– owner comes over (cause they still have a key) to see what you are up to . (Also happened to me, a old guy I didn’t know let himself into the locked house whilst I was working) now I don’t know him. But what If my tools had gone missing. It could get ugly.Fair points…
FInancially, I am comfortable….
I am only really concerned if the owner dies..
She is an elderly Lady, and no one has lived in the home for sometime. She lives 400kms away.I will be paying rent, $100 p/w during settlement, so I can take “possesion”
Thanks for your input!!!
Great, Thanks Wilko, AV
Did you use a particular special condition, to cover yourself, if the owner dies?
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