Hey Guys,
In line with my request for renovation companies, I was considering different ways to fund the renovations. I have recently been paid a bonus, which contained a substantial amount of tax. After having been given advice from my accountant, I should be able to repair the roof as it is asbestos. This right off will help recover some of the tax I have paid. My question is with regards to funding the repairs. The 2 methods I am considering are:
1. Pay for the repairs with the money in the offset account.
2. Take out a second loan, and slowly pay of the the loan with the money from the offset account over the course of a year.The first method is straight forward, just pay for the repairs, and get some of the money back at tax time.
The second method, I get to keep that money reducing interest on the loan. And paying the extra interest on the second loan but paying it off over the year.
Any thoughts please?
Anyone?
Hi goosehead,
If I am reading your post right, the crux of the question is whether to borrow to make repairs, or whether to utilise existing funds instead of borrowing…..Though I am NOT an accredited adviser (so do your dd on my answer, eh?) I believe that the repair to the roof may well turn out to be a Capital Cost. As such, it can only be returned to you on sale of the property. However, if you BORROW to fund that Capital Cost, then the cost of those borrowings would be deductible.
So, if I am right, your choice #1 would not be ideal, as you would NOT be getting your funds back at tax time.
This would leave choice #2 as “the way to go”. Consider though whether you really would want to “pay it off over the year”. With rates as low as they are, maybe utilise your spare funds for other things and simply pay the 5% year on year (with Tax benefits each year).
But hey – those who ADVISE on this kind of stuff will have a much more complete answer, and probably also have good reasons why my suggestions WON’T work (eek!!) Let’s see who else is around,
Benny
@benny and @goosehead – normally what Benny is saying is correct that major improvements and renovations are all added to the cost base like stamp duty for future capital gains cals, so you get it back at sale, NOT as a tax deduction.
HOWEVER
For asbestos roof removal, there is a special rule I believe (please check this for yourself with your accountant etc etc disclaimer yadayada)
https://www.asbestossafety.gov.au/article/removal-damaged-asbestos-residential-or-commercial-investment-property-tax-deduction
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s40.755.htmlThis part of the act I believe means you can claim asbestos removal as an environmental activity and get an immediate claim for it, even though replacing asbestos roof with colorbond would normally be seen as value add improvement.
As I said, that is my interpretation of that tax ruling and I have known people who have used it and claimed the full cost in the year they did the work but I don’t know for sure that it is still applicable so perhaps check with your accountant and/or call ATO for confirmation.
Could be a big tax break.
Regardless – it is more efficient to use debt to fund it and claim the interest, I usually prefer to keep the capital on hand for emergencies. If the debt is available and tax deductible interest then why use valuable dollars? Keep them as a buffer. That is my preference, unless you are about to sell in which case you will get dollars back anyway it wont matter either way. If keeping long term, max the tax deductible debt, keep dollars for personal savings.
BuyersAgent | Precium
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