What should paint be claimed as??

Misty1

If the property needed paiting when you purchased it the paint is an improvement if it did not need painting when you purchased it it is a repair.

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Misty1
IT2587 states that if a property is used only as a rental property during the whole year then a repair would be fully deductible even though some of the damage may have been done in previous years when the property was used for private purposes.
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Hi,

I wrote the following almost a week ago and decided not to post it as it probably was too wordy.

Anyway seeing as I have written it I might as well post it, as someone may gey some benefit from reading it, although it may be questionable that it sheds any further light on the original question.

Hi,

I don’t believe that the original question involved owning the property before it was used so the point was not relevant. However it is a good idea to bring it up as others reading the forum may take comments made to someone else’s questions and apply it to their own situation when that may not be appropriate.

Of course people should always consult an adviser in regard to their particular circumstances and not act directly on comments given in forums etc.

I thought I would expand on IT 2587 as other readers may be interested.

It 2587 has been withdrawn and a more current ruling is TR 97/23, however it is essentially the same.

The relevant extracts of both appear below. (Section 25-10 replaces section 53)

One still needs to be aware of what is an initial repair as this can be a turning point as to whether an amount is deductible or not.

The following two interpretative decisions shed some further light on the ATO’s interpretation.

http://law.ato.gov.au/atolaw/view.htm?find=%22ATO%20ID%202003%2F927%22&docid=AID/AID2003930/00001

and

http://law.ato.gov.au/atolaw/view.htm?find=%22ATO%20ID%202003%2F927%22&docid=AID/AID2003929/00001

Tr 97/23 talks about what the ATO considers is an initial repair.

“4. In this Ruling, the expression ‘initial repair’ refers to a repair by a taxpayer that remedies some defect in property or makes good damage to, or deterioration of, property being a defect, damage or deterioration:

(a)
existing when the property was acquired from another person (whether by purchase, lease or licence); and
(b)
not arising from the operations of the taxpayer who incurs the repair expenditure.
5. A repair is not an ‘initial repair’ simply because it is the first repair made after property is acquired. It is an ‘initial repair’ if repair is due when the property is acquired in the sense that the property has defects, damage or deterioration or is not in good order and suitable for use in the way intended.”

Following are some extracts from TR 97/23 and IT 2587 referred to earlier

TR 97/23 states in part:

“76. In appropriate circumstances, expenditure for repairs can qualify as a deduction even though the property has previously been held, etc., by the taxpayer for non-income purposes. This situation is different from an initial repair done to newly purchased or newly leased property, where the repair expenditure is capital expenditure.

77. A deduction is allowable under section 25-10 if, when the repair expenditure is incurred in a year of income, the property is held, etc., by a taxpayer for income purposes:

(a)
even though the property has previously been held, etc., by the taxpayer for non-income purposes; and
(b)
even though some or all of the defects, damage or deterioration arise from, or are attributable to, the taxpayer’s holding, etc., of the property before its holding, etc., for income purposes; and
(c)
provided that the repair expenditure is not capital expenditure. “

It 2587 states:

“4. Subsection 53(3) does not provide for apportionment of expenditure on repairs where an asset has been used by a taxpayer in earlier years of income for purposes other than that of producing assessable income. The subsection only provides for apportionment of expenditure where an asset is used by a taxpayer partly for income producing purposes in the year of income in which the expenditure on repairs is incurred.

5. Where an asset is used wholly for the production of assessable income during the year in which expenditure on repairs is incurred, the total cost of repairs is deductible provided of course that the expenditure is not of a capital nature. A deduction is allowable, even though some or all of the deterioration or damage giving rise to the repairs may be attributable to use of the asset by the taxpayer prior to its use for the purpose of producing assessable income (see Case V167, 88 ATC 1107; AAT Case 12 (1986) 18 ATR 3056).”

Hopefully you the reader have gained some benefit from the discussions and this wasnt too much to digest.

Regards,

Glenn Wallace
Chartered Accountant, Business Adviser and Registered Tax agent
http://www.businessadviser.com.au

Hi Misty1,

My pleasure. I am happy that you got some benefit from it.

I am based in Sydney, more specifically the Hurstville area.

You or anyone else are welcome to visit my website and contact me if you wish.

Regards,

Glenn Wallace
Chartered Accountant, Business Adviser and Registered Tax Agent.
http://www.businessadviser.com.au

Julia, and Advice – how does one ‘prove’ to the ATO that the repair was necessary, for example, that the property did indeed ‘need’ painting when it was purchased (as opposed to painting it after purchasing, when it didn’t ‘need’ it)???

ChupaChup,
It is a question of fact. In other words the onus of proof is on you. If the property is managed and the first inspection does not suggest painting you are home and hosed. Else look for other evidence such as water or tenannt damage since purchase if the painting is done soon after purchase. If it is a mulitple dwelling in Qld the council normally inspects before settlement and lists repairs they require, if painting is not listed that is evidence. What the painter writes on the invoice may also be helpful.

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Misty,
If it’s a new house, the paint would be part of the building cost i.e. depreciable at 2.5%.

Let me clarify my question a little bit.

For capital works expenses less than $300 (e.g. wall tiles, light fittings, paint, etc), is it possible to depreciate it 100% ?

Or do I need to depreciate 2.5% over 40 yrs ?

Thanks !