I have recently bought a place which I plan to make an IP for the first 6 months or so before moving into.
If I cannot find a tenant for this short rental (I have had no sucesss so far), can I claim the interest repayments during this vacant period as an expense? I am planning to go through an agent so I will have evidence of my efforts to try to rent it out.
Also, in terms of improvements to the property – I understand I cannot do significant capital improvements and then claim them as an expense…but can I for example paint inside in order to get it to a more rentable state? replace bad guttering? …even restump parts of the house? ! Anyone got a link to more detail on this?
Does the duration of the rental (ie 6 month) affect what improvements can be made?
Thanks
Yes you can cliam expenses as long as the property is available for rent.
As for improvements, they may be classified as initial repairs, and would have to be depreciatede, rather than deducted outright. You might get away with painting, but replacing the gutters and restumpoing the house would most likely be classified as intial repairs and form part of the cost base of the house.
The ATO are real people, there do have laws to go by that are often grey…….. You will need to keep the deductions real… They may also classify otherwise typical expenses (not improvements) as part of the cost base due to it be that way when purchased. I would err on the conservative side on this one…..
Be careful, I'm certain I read somewhere that you can only claim expenses if the asset earned an income of some sort in the same financial year. Look into it. If you find this to be true, then if you have to, rent the place out for a week for a dollar.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
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number 8 wrote:The ATO are real people, there do have laws to go by that are often grey…….. You will need to keep the deductions real… They may also classify otherwise typical expenses (not improvements) as part of the cost base due to it be that way when purchased. I would err on the conservative side on this one…..Thats a good point I'll make sure to double check this point with the accountant. Just wanting to get a rough feel at the moment for my own calculations.
JacM wrote:Be careful, I'm certain I read somewhere that you can only claim expenses if the asset earned an income of some sort in the same financial year. Look into it. If you find this to be true, then if you have to, rent the place out for a week for a dollar.That makes sense I suppose, I hadn't thought of that. Thanks!
I think a one dollar rental contract might raise a few eyebrows though!?
A few eyebrows is an understatement. An auditor will have you for this, this is clearly not acceptable.
Further, you do not necessarily require an income but be actively looking for a tenant etc. The ATO's test is "was the purpose of the borrowing to invest in an income producing asset" Go back to what I stated originally and keep it real, but also make a decision on what is legislation, not hear say. Refer to Ormiston v FC T 2005 ATC 2340. A property vacant for four years…… I won't bore you with the details.
Also when you eventually come to sell the PPOR you will have to factor in capital gains tax for the period of rental.
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