Yipee – we’re in the process of acquiring our first I.P. soon to be settled. Question – have heard that to claim repairs the property needs to be rented. Is it a requirement that it has to be rented for a certain period of time before repairs can be claimed. Have heard of an investor who ALWAYS rents the property to a relative for a week or so, then carries out maintenance and claims them as repairs to gain a full deduction, rather than a depreciation %. Is this treading on thin ice? Appreciate your feedback.
Cheers.js
Well, I’m not an accountant but i think anything done relatively soon after purchase would be considered a capital improvement rather than repairs.
Renting first may help if it can be consdiered normal wear and tear and therefore needs maintenance but, your guess is as good as mine as to the sort of timefram you may get any with. I think if you rented for a coupel of weeks and then did a stack of repairs it would most like still be considered a captial improvment. If your just chanign a couple of washers after it’s rented, you’d probalby get away with that as a repair.
I think an accountant would be better qualifie dto answer this but that’s my understanding, I’m sure someone will correct me if I’m wrong.
Regards
PKOriginally posted by sokos:Yipee – we’re in the process of acquiring our first I.P. soon to be settled. Congratulations Question – have heard that to claim repairs the property needs to be rented.I believe so as well Is it a requirement that it has to be rented for a certain period of time before repairs can be claimed.I dont think there is a “set in concrete” time period, however, an accountant may tell you 12 months..I dont think this is an ATO requirement though Have heard of an investor who ALWAYS rents the property to a relative for a week or so, then carries out maintenance and claims them as repairs to gain a full deduction, rather than a depreciation %. Is this treading on thin ice? Does the relative have the same surname [biggrin], what kind of repairs though..painting and maybe carpets or are you talking $20,000 replace kitchen and bathroom? Appreciate your feedback.
IMHO ..look at the end gain..if its only a small amount of money , dont bother playing games..
Cheers.js
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorSokos,
There would be quite a few Interpretative Decisions on this in the ATO data base.
Do a search under ‘initial repairs’ and you will probably find your investor friend is indeed treading on thin ice.
Strictly speaking, if a property is in a state of disrepair at the time of aquisition, any repairs are capital in nature.
So how long would a property need to be rented out before any work could be claimed as repairs?
Certainly longer than a week.
It would depend on the extent of work being done. Let’s say you rent a place out for 3 months and then paint the entire interior and try and claim it as a repair. You’d be pushing it.
It’s one of those ones where you have to use some common sense. If you think you may be being a bit cheeky, you probably are.
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http://www.depreciator.com.auI worked for 15 years in tax accounting and this is a common question asked.
You can only claim expenditure that replaces/repairs a property back to its condition when purchased. Be wary of people who say they have claimed expenses after only 1 week as the tax office accept all tax returns as lodged and its only when you get an audit that you need to prove your claims. Repairs must be associated with resonable wear and tear from a tenant and it would be best to wait at least 12 months before replacing carpet/paint etc.
Good luckAJBS
I think the official line is only..”it must be earning an Income” before repairs can be deducted, there is no time stipulation regarding how long before it earned an income..
I’d follow some of the great advice above and play it safe though.. why tempt fate (or the ATO)..
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorThanks for the input all !
I certainly will look into it much further.Some of the initial cost involved in getting it to ‘shine’ will be offset by the increased rent return the property will achieve.
Back onto repairs – say a hot water heater gives up shortly after the first tenant moves in – wouldn’t that be a repair irrespective of the time it has been tenanted?
Cheersjs
I sometimes laugh when these really clever investors try it on against the ATO and their auditors. The worst is when they go posing around to other investors about how they ‘got away with it’ and it’s easy if you know a few ‘tricks’.
Most of the ATO auditors are extremely cluey and know every trick in the book. They are not a court of law where they need to prove something against you…the burden is reversed…if you want the claim you’ve made approved, you need to prove to them it is legit. When they are crawling up your fundamental orifice with a fine tooth comb, being really sneaky and tricky, very quickly turns into what it really is….foolish to the nth degree.
I don’t think any investor swaggers out of an audit thinking the auditors are a pushover.
The auditors use words like “reasonable”, “plausible”, “verify”, “confirm”, “correlate”, “check”, “cross referenced”. Dodgy investors tricks and scams never cut the mustard in this environment.
Having never been audited, I’m not speaking from first hand, but having a chat with investors who have been, they were absolutely gob smacked at the truckload of data and info that the ATO knew about them. There’s not much they don’t know about your very personal and financial lives. When they ask you questions, apparently they always know the answers…they are just testing to see whether you tell them the truth or not.
Cheers,
Darryl Moore
“No point having a cake if you can’t eat it.”
Thats interesting reading about the ATO audits. I would be interested to learn more about this. Are there any posts in these forums about peoples experiences of ATO audits? Would anyone care to pen their experiences?
I suspect that this area is questionable and might be like waving a red flag at the ATO. It is best to avoid the gamble because there are many tax deductions available….capital depreciation,special bldg right-off etc. The next question may well be what if I borrow money for renovation/improvement, is the interest a tax deduction?
I’m not an accountant, but I assume the cost of borrowing money for a renovation or improvement would be deductible. You would have to make sure you don’t use any of the borrowed funds for private purposes.
Further to Dazzling’s point, I had a great accountant years ago who I suspect stopped me getting into strife with the ATO. Whenever I had an idea with my tax that was a bit clever, I would run it past him at our bi-annual meeting.
He would sigh, and say: ‘Okay, let’s pretend I’m the ATO…’ Then he would grill me in a pretty humourless fashion in much the same way I imagine an auditor would. Within minutes, he would nail me.
Taking on the ATO just isn’t worth it. And when it comes to depreciation, I think the benefits are pretty generous anyway.
ScottTax Depreciation Schedules
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http://www.depreciator.com.auI’ve heard that if you get a bit too creative with your tax deductions, and then get audited….. that your accountant can easily stand to the side and say that “they were never told about this” and “Oh, my client didn’t give me full details about that.”
Leaving you , the investor, high and dry.
Live, Learn and GrowLifexperience
When you sign your tax return you accept responsibility for everything in it.
Tax Depreciation Schedules
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http://www.depreciator.com.auI was audited some years ago by the ato and thankfully there were no problems. Can thank my conservative old accontant for that. The thing that sticks in my mind is the look he gave me after the auditor had finished… Yep that stressed and haunted look… Actually he died only a few years after that.
Shawn
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