I've recently settled on a new investment property where on final inspection damages were identified due to the place having been broken into the weekend prior to settlement. The settlement was adjusted by an amount agreed with the vendor to cover the cost of me to have the damages repaired myself.
The contract amount was not adjusted by the amount of the damages, just and adjustment to the settlement amount.
Is my purchase still the contract amount ? or the Adjusted amount ?
How do I treat the amount returned to me for the damages. Is this Income and the cost of the repairs an Expense ? or
Does the amount reduce my cost base and the cost of repairs increase my cost base ?Cheers
MalGood question. Don't know the answer though!
I think the purchase price would remain the same with the money for the damages to be classed as income which could then be offset by the cost of the repairs – But I am not sure about this.
Was it a large amount? and did you or will you conduct the repairs?
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
Personally, I would be seeking that the contract sum be changed for the following reasons:
Price paid reflects your cost base, any money spent on repairs is reflected in the reduced cost base for cgt, stamp duty would be reduced (negligibly), you do not have to offset the 'income' against the expense of the repairs (the repairs may cost you less than the compensation received). Conversely, it may affect the bank's valuation and the amount they will allow you to borrow on the property.
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