Hey Guys,
I am looking at renting my PPOR for 3-4 years and live elsewhere. While away I plan on renovating this property while it is a rental and depreciating the costs in that period before moving back in. The thought being to reduce the costs of the renovations that little bit over that period while we have the opportunity. This may not be a huge amount of money but a little back is better than nothing. My father brought up a point that he was advised you can't renovate for the sake of renovating, as it has been my PPOR, renovations have to have a purpose for the tennants, ie renovate the bathroom becuse the toilet isn't working etc. Can I renovate to value add or to improve the standard of the accomodation for the purpose of depreciating these renovations?Thanks for your time guys.
in order to claim money back on renovations, it must have been rented out previously ie held for an income-producing reason.
So any repairs/renos done between you moving out and a tenant moving in can not be claimed
Also there’s a difference between repairs and capital improvements, repairs can be claimed and improvements can be depreciated over time. check with the ATO or your accountant for details
if the toilet isn’t working and you replace the toilet, you shoudl be fine to claim that. bu if you also strip out all the tiles, replace vanity, new mirror, new shoers etc then those parts of not repairs but are improvements.
The ATO has some very useful info on their website
How are you going to do renovations while it's rented?
As mentioned above repairs while it's rented can be claimed. Improvements cannot. But f you do the renovations you can claim depreciation while it's a rental. It doesn't matter when you do them. You can do them just before you move out then get the depreciation schedule done.
Hey Catalyst my partner has organised quotes etc to get the work completed and we planned to do it before it was tennanted or work with the tennants to arrange a time and reduced rent if it inconveniences them. I have been away for most of this year and have a short time frame to move due to my work comitments that is why we hadn't planned on doing them now. When it comes down to it, it was only the depreciation I was going to claim for, I know 2.5% for three years may not be much but is more than nothing.
Hi Wisepearl, someone somewhere mentioned to me that if it is repairs required to make it income producing they could be claimed. I guess the ATO would require proof that it was vacated as a PPOR and tennanted after repairs. For example the wiring and fuse box need to be upgraded as I bought after the cut off period, 07 or 08, regardless it needs to be done before renting the place. Can this cost be claimed?
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.
that makes it clearer, thanks for that.
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