Hi
A number of years ago, my wife and I bought a second house with the intent of renting it out for a few years, and then moving in once our family grew. There was quite a bit of maintenance and repair work needed on the house, and we had hoped to get most of this done while the property was being treated as an investment property, so that we could deduct these expenses.
Unfortunately, our tenants have generally been difficult, and only make the house available when the maintenance issue directly impact them. We've grown tired of this, and our family has grown, so we have made the decision to end the lease, and move in. The lease finishes in 7 weeks.
I've been mr-nice-guy up until now, and probably cared a little too much about keeping the tenants happy. I'd like to get these maintenance items dealt with before the lease is up, and I'm aware that I can give notice (48 hours I believe) that this work is going to occur, and that they don't necessarily need to consent.
My main question: is the tax-man likely to have issue with a lot of repairs/maintenance expenses being claimed only a few weeks before it becomes a PPOR? (We're probably talking in the order of $12-15k on a $700k house).
Thanks for reading my long winded question, and really appreciate any advice you can offer.
Many thanks
Pete
Yes. Depending on what it is. New stove for example will be depreciated over 5 years or so. If you move in within only 2 weeks of fitting this then you could only claim 2 weeks worth.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terryw, The items for repair are fairly clearly repairs and maintenance, not capital works or improvements. Most of the items have been documented well (including photos) in inspection reports from the PM over the last year or more, so proving that they happed during income production shouldn't be too hard. I guess I just wondered whether anyone knew if this would raise any red flags.
Someone put me on to this ruling: http://law.ato.gov.au/atolaw/view.htm?docid=ITR/IT180/NAT/ATO/00001 – which indicates that I could even do the repairs immediately after the property ceases to be income producing, so long as it's in the same financial year as income production.
Although I'm confident I'd come up clean in an audit, I just didn't want to be triggering one, or causing any unnecessary angst during one with this approach.
Mate, that is the oldest tax document I have ever seen. Look at the date on it – 1964.
Since then decimal currency has come into play, CGT introduced and a whole new tax act enacted.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terryw. So to the best of your knowledge, does the same high level principle hold true under newer tax law? (ie. repairs relating to income producing property that became necessary as a result of income production (eg. tenancy) can be claimed if undertaken in the same financial year, immediately after the property ceases to become income producing)?
YouKnow – I may be wrong here, those one-off repair costs can be claimed as a tax deduction for that FY, however if you move into the property during that FY your deduction may need to apportioned.. i.e. if you lived in the property for 6 months out of the year you could only claim 50% of the deduction. I imagine you could time it so that if you pay for all of your repairs close to the end of FY where the tenant has been living for most of the year – you could claim most of the deduction. Then kick them out after.
Rather than listen to me.. Here is a link from the ATO website which goes into further detail – scroll down to the Repairs and maintenance section for an example very similar to yours.
http://www.ato.gov.au/corporate/content.aspx?menuid=0&doc=/content/00313554.htm&page=9&H9
See example 12 under repairs and maintenance.
"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".
http://www.ato.gov.au/corporate/content.aspx?menuid=0&doc=/content/00313554.htm&page=9#P326_35547
Thanks minds-eye and donkey1. I'll run it all by my accountant next week to be absolutely sure, but looks promising
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