Browse Forums Home Finance 1 Feb 07, 2014 10:05 am I'm hoping someone here might know this one. I am planning on doing some renovations to my property when my tenant leaves next month, just bathroom and some kitchen. I am currently undecided but there's a chance I would move in after the renos. Can I claim the renovations on tax if I end up moving back into the property? Is it still classified as investment while it's empty up until the day I move back in or is the other way around? Thank you for any advice. Re: When does an investment property become a primary reside 2Feb 07, 2014 10:51 am I will have a stab. First of all the renovations mat be like for like repairs to qualify as deductible expenses. Be careful how you document them as they could be treated as capital in nature and not deductible but depreciable. Timing difference. Now if no one is living in the property and it was rented immediately prior to the work and after then I would argue that the work was carried out to earn income. Expenses incurred to earn income would normally be deductible if revenue in nature (as opposed to capital in nature). If you live in the house once repairs are carried out it could be seen as rePairs to bring it to the standard where you wish to live in it. If that is the case then it would not be deductible as no revenue is associated with the expense. I would actually aim to change to nature of the expense I that is the case and not repair like for like. That way it would be a capital expenditure and would be added to the base for cgt. That is how I see it. I am not a tax accountant and it has been a long time since I looked at it. Just my 0.02 Cheers Mark Re: When does an investment property become a primary reside 3Feb 07, 2014 1:59 pm Thanks very much Mark. So basically if I'm turning it around to rent again it should be repairs but if I'm planning on living it I'm better off them being renovations? The toilet is broken and the shower cubicle is leaking and bubbling the paint on the wall behind it. So it's a situation where if I do a the repairs then I just retile shower and replace toilet. Or if I do more like I wanted to (replace all wall and floor tiles, buy new shower) I could call it a renovation? Re: When does an investment property become a primary reside 4Feb 07, 2014 2:14 pm The renovation can also be a repair I would think as long as it is not different from what it was. I think if the bathroom is remodeled where items are moved around or walls are shifted then it more than likely would be a capital expense. For example, a famous case was where a dance studio replaced a broken wooden dance floor with a concrete pad and wooden floor. It was going to last a lot longer but was still a dance floor. It was cheaper than replacing a wooden structured dance floor as well. I recall the expense was disallowed as it was sufficiently different and of different material structure. It was considered capital in nature. Hope this helps. Cheers Mark Re: When does an investment property become a primary reside 5Feb 07, 2014 5:59 pm Let's be realistic. No one is going to look at it. It's just how your accountant claims the expenditure. If you move in it's a mute point because you can't depreciate anything if you live in it. Re: When does an investment property become a primary reside 6Feb 07, 2014 6:45 pm Quite true, but I thought I would provide both views. As the tax system is self declaration it depends on whether one gets reviewed and then how the questions are answered. Precedents are based on outcomes of tax trials and repairs and maintenance do get looked at. That said the probability would be low as the amounts would not be massive. Re: When does an investment property become a primary reside 7Feb 07, 2014 7:38 pm AussieMark Quite true, but I thought I would provide both views. As the tax system is self declaration it depends on whether one gets reviewed and then how the questions are answered. Precedents are based on outcomes of tax trials and repairs and maintenance do get looked at. That said the probability would be low as the amounts would not be massive. True, better to be safe than sorry. Even though the chance is small, it's still there and you don't want to let something that can be sorted out properly with minor inconvenience at the start turn into fines later on. Hence why seek an accountant's advice and they should be able to settle it for you. Cheers, Tom Re: When does an investment property become a primary reside 8Feb 08, 2014 9:34 am It's a great idea to ask these things before you start as it can make a difference. If you can get some tax benefits of course you are going to take them, but don't let that be the driver. Often people go to extremes just to save a few dollars in tax. When I started buying run down properties and doing a reno then renting people came up with the "oh rent it for a year then do the reno to save tax". And people did that, doing themselves outy of instant equity and increased rent to save a few tax dollars. I did the reno, had at least $50K to renivest and the IP was CF+ from day one. I've also seen people spend $4,000 "repairing" a kitchen by replacing doors, benchtops etc when they could have had a brand new kiotchen for nearly the same money, all in order to claim it on tax. SO my advice is do what needs doing for the benefit of the investemnt, NOT just to save a few $$. Re: When does an investment property become a primary reside 9Feb 08, 2014 11:48 am Yep I agree Travelbug. Penny wise pound foolish. Also, as an example, if you replace a kitchen it could be a repair or a renovation depending on how it is documented. Sometimes a good accountant may help you decide which grabs the attention of the tax man. I would also rather have positive cash flow than the large deduction. Re: When does an investment property become a primary reside 10Feb 14, 2014 4:05 pm AussieMark Also, as an example, if you replace a kitchen it could be a repair or a renovation depending on how it is documented. . Only if you twisted the truth. A repair is "repairing" the existing (there's a maximum % you can replace). A "replace" is replacing it. Re: When does an investment property become a primary reside 11Feb 14, 2014 4:29 pm I think it comes down to whether it is classed as a capital improvement. It is along time back since I had read the case law but I recall the test case was a dance studio that replaced the wooden dance floor with a concrete pad and that was disallowed but had a like for like been used then it would be ok. I think that the % replacement sounds reasonable and the devil is in the detail with these things. I would get advice from your tax man. I know I recently "repaired" two kitchens and wardrobes in my Investment properties and put them in as expenses. I am waiting to see what is allowed/ disallowed. There was a lot of tenant damage so not sure how that will work. Either way you still get a deduction I think its a matter of whether it is once off or depreciated over time. You might be able to apply to divert the sewer at your expense. 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