I’d be in agreement with the second option as well…

For the first option:(quoting from ATO website) The cost base and reduced cost base of a property includes the amount you paid for it together with certain incidental costs associated with acquiring, holding and disposing of it (for example, legal fees, stamp duty and real estate agent’s commissions). Certain amounts that you have deducted or which you can deduct are excluded from the property’s cost base or reduced cost base.

So u see that legal fees, stamp duty, commissions etc can be added to the cost base.

As for council rates, see: http://www.ato.gov.au/individuals/content.aspx?menuid=0&doc=/content/00270214.htm&page=9&H9

Here you will clearly see that council rates are deductible immediately in the tax year they were incurred.

I might suggest accountant #1 may not be the best partner for a property investor…

have an informal chat with your council, just don't give the address. Ask about their requirements for granny flats or similar. It will need to meet various building codes in terms of ceiling height, waterproofing, ventilation, insulation and some other factors, all part of "doing up" the shed. if you're planning to lease to someone through an agent and have a legit contract and everything bear in mind any legal requirements for fire alarms and RCD switches. Might also want to check about putting in separate meter for power usage, unless you plan to include utilities with the rent.

Do all the research to see if its possible before spending a cent on doing up the shed, otherwise you may be wasting your money.

http://www.ato.gov.au/individuals/content.aspx?doc=/content/00183233.htm&pc=001/002/002/013/003&mnu=&mfp=&st=&cy=1 

Can you claim the cost of repairs you make before you rent out the property?

You cannot claim the cost of repairing defects, damage or deterioration that existed when you obtained the property, even if you carried out these repairs to make the property suitable for renting. This is because these expenses relate to the period before the property became an income producing property.

Example

Stephen needed to do some repairs to a rental property he recently purchased before the first tenants moved in. He paid tradespeople to repaint dirty walls, replace broken light fittings and repair doors on two bedrooms. He also had to have the house treated for damage by white ants.

Because Stephen incurred these expenses to make the property suitable for rental, not while he was using the property to generate rental income, the expenses are capital expenses. This means he cannot claim a deduction for them.

http://www.ato.gov.au/individuals/content.aspx?menuid=0&doc=/content/00270214.htm&page=9#P340_35485 

Repairs and maintenance

Expenditure for repairs you make to the property may be deductible. However, the repairs must relate directly to wear and tear or other damage that occurred as a result of your renting out the property.

Repairs generally involve a replacement or renewal of a worn out or broken part, for example, replacing some guttering damaged in a storm or part of a fence that was damaged by a falling tree branch.

However, the following expenses are capital, or of a capital nature, and are not deductible:

• 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.

You may be able to claim capital works deductions for these expenses; for more information see Capital works deductions. Expenses of a capital nature may form part of the cost base of the property for capital gains tax purposes (but not generally to the extent that capital works deductions have been or can be claimed for them). For more information, see the Guide to capital gains tax 2011. See also Cost base adjustments for capital works deductions.

Example 11: Repairs prior to renting out the property

The Hitchmans needed to do some repairs to their newly acquired rental property before the first tenants moved in. They paid an interior decorator to repaint dirty walls, replace broken light fittings and repair doors on two bedrooms. They also discovered white ants in some of the floorboards. This required white ant treatment and replacement of some of the boards.

These expenses were incurred to make the property suitable for rental and did not arise from the Hitchmans' use of the property to generate assessable rental income. The expenses are capital in nature and the Hitchmans are not able to claim a deduction for these expenses.

Repairs to a rental property will generally be deductible if:

• the property continues to be rented on an ongoing basis, or
• the property remains available for rental but there is a short period when the property is unoccupied, for example, where unseasonable weather causes cancellations of bookings or advertising is unsuccessful in attracting tenants.

If you no longer rent the property, the cost of repairs may still be deductible provided:

• the need for the repairs is related to the period in which the property was used by you to produce income, and
• the property was income-producing during the income year in which you incurred the cost of repairs.

Example 12: Repairs when the property is no longer rented out

After the last tenants moved out in September 2010, the Hitchmans discovered that the stove did not work, kitchen tiles were cracked and the toilet window was broken. They also discovered a hole in a bedroom wall that had been covered with a poster. In October 2010 the Hitchmans paid for this damage to be repaired so they could sell the property.

As the tenants were no longer in the property, the Hitchmans were not using the property to produce assessable income. However, they could still claim a deduction for repairs to the property because the repairs related to the period when their tenants were living in the property and the repairs were completed before the end of the income year in which the property ceased to be used to produce income.

Examples of repairs for which you can claim deductions are:

• replacing broken windows
• maintaining plumbing
• repairing electrical appliances.

Examples of improvements for which you cannot claim deductions are:

• landscaping
• insulating the house
• adding on another room.

I liked Terry’s suggestion, take the $395 off right now, thank them, and then wait and see what happens with interest rates. come February or so, call them back and show some comparison rates and try to then get a 0.1% discount later…

using an online interest only mortgage repayment calculator, I used the following figures:

loan = $420000
term = 25 years
interest rate = 6.81%

and it showed a minimum monthly payment of $2383

if you chop of 0.05% and bring interest rate down to 6.76%, then over the next 12 months with no change in rates you’d pay $2366. So a saving of $17 a month with their offer, meaning you’d have to benefit from this for 23 months for it to equal their offer of no annual fee.

So take the $395 discount

you mention you have $30k deposit WITH the FHOG, but you say you want to start with investment property…

just to clarify, as you have not owned property before you may be eligible for the FHOG but only if you live in the property for at least 6 months. you can always have someone else rent a room in the property to help income, but you need to live there. after that time you can always move back home.

or you buy an investment property without the FHOG, don’t live in it and stay in a rent-free scenario… FHOG would still be available if you chose to buy a property to live in, though of course subject to the FHOG still being around at that time.

you need to decide which scenario is more suitable to you in your current situation, there’s no simple right or wrong choice there.

learn about offset / MISA accounts so you know what to do with your extra money… rather than “pay it off until cashflow positive” you can have your funds reducing the interest payable (which is tax deductible anyway) and then when its time to purchase another property easily take these funds to be used elsewhere.

Congratulations on your decision to start investing, and good luck!!

Emma

Hey MrsC, I’m in WA too – knew u were over west from another post of yours… is this house listed as expressions of interest then, rather than the usual offer and acceptance? that changes things…

for the standard residential sale over here, you write up an offer and its presented. But its becoming more common for different sales tactics, such as expressions of interest, set date sales, and other types where you have a certain period of time in which to make your offer. I thought in these situations the agent will list “prices above $x” or “priced from $x” or even “buyers over $x” rather than an “asking price”

I have seen examples where it is listed as “offers over $300k” and has sold for $380k.

Good luck!