Hi all,
We bought a land where a rental house will be built. Now that the house is ready for final inspection, is the travel & accomodation expense to do final inspection (handover) tax deductible or not or is this a capital expense?
Regards,
ApprenticeGood Q Apprentic,
I have always thought that the money you spend to make money is tax deductible. That is why the mortgage on your PPOR for an IP is tax deductible and so are all fees and charges.
I cannot see there being a difference in travel and accomodation, as long as you keep all receipts and it isn’t via Disneyland with the whole family.
If I’m wrong then I’m sure it will be pointed out by others by tonight! Have you asked your accountant?
Cheers
C@34
Hi,
It’s wise to ask before doing something.
The property has not been settled yet, so it has not been rented out, I hazard a guess. The income-producing activity has not commenced, so the travel and accommodation are capital expenses. They are added to the purchase cost and can be depreciated over time.
If you visit the property after it is rented, then the travel and accommodation will be deductible to the extent that they relate to inspecting the property, dealing with rental agents, effecting repairs and the like.
You might be able to get away with the travel and accommodation becoming deductible if you pre-arrange with a rental manager to have the property listed as available for rent. Then your trip is to make final arrangements for renting, such as effecting any changes requested by the rental agent following a joint inspection.
Visiting the property when it is available for rent is similar to visiting it when it is rented. This may be a later time to the actual settlement, so may not suit you if you really wanted to see it prior to settlement. But if your aim is to make the trip deductible…
Christopher Raynal
Master Accountants Group Limited
PO Box 46018 Herne Bay
Auckland New Zealand
Ph +64 9 360 3259
Fax +64 9 360 2180
http://www.masteraccountants.co.nzHi,
Travel prior to settlement of the land is strangely neither, deductible or added to cost base, (check on ATO web site under rental properties).
As you have settled then incurred expenses prior to deriving income, (rent) the expense is capital in nature and added to the cost base (S6 1 ITAA) as it doesn’t fall under the decline in value (depcn) divisions it cannot be written off.
There is no golden thread of common sense with tax so I guess it keep us in a job.
Regards
Tony
Thank you all for your response.
Just to add a bit more info…
Settlement of the land was done before we built the house.
We went there to do the handover/final inspection of the house and sign the paperworks for the last progress payment as required by the builder. We also make arrangements for the rental manager to sign paperworks and advertise the house available for rent.
Apprentice,
Steele’s is the precident that expenses that are esentially revenue in nature are deductible before income is earned if the intention in buying the property is to produce revenue. Accordingly, travel expenses incurred after settlement are deductible.
Just to clarify other comments. ID2003/771 travel costs can never form part of a cost base for CGT purposes.Julia Hartman
[email protected]
Visit http://www.bantacs.com.auJulia,
So, in our case, because settlement of the land was done (i.e. we already own the land) before construction of the rental house commenced, the travel expense to do handover/final inspection of the house is tax deductible.
Apprentice.
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