Hi everyone,
Thank you in advance.
We are going to make an offer to an IP, finger crossed we can get the house.
I want to put a condition on the contract, ‘get access to house 2 weeks before settlement for renovation’. I believe the owner will agree as we just need to pay more deposit and offer a little more.
I have a questions regarding this:
As we renovate the house before settlement, the renovation cost happen before the house is settled and before the house start to generate income. Can we still claim all the renovate cost in the yearly tax return? Or can we only claim these cost when we still house as a cost? The renovation we plan to do is: paint the wall, doors and windows; rip off carpets and polish floor; refresh the kitchen and bathroom; change any equipment/lights that need to be changed.
I am just worried I have access to renovate the house 2 weeks before settlement, but I only can claim less than what I should claim because the renovation cost happen before settlement date? Does this IDEA affect the tax refund? Or it doesn’t affect. You still can claim what you can, it doesn’t matter if the renovation job is done before or after the settlement?
Thank you everyone.
Hi Nan,
I believe it goes deeper than “before settlement or after”. My understanding is that a “repair” is only valid once a property has been receiving rental income. If you are to “repair” ahead of renting, then the cost may not be deductible except to offset any Capital Gain on sale.I think of it like this – the ATO sees you buy a house that “needs work” as being able to be bought at a lower price. Then, for you to make it “rental ready”, you must spend more money, thus building up its Capital Value – money spent to bring it up to “ready” then might form part of your Cost Base, but not a yearly deduction as such.
It really is more complex than it would first appear, so I would suggest you have an adviser (not me) answer all of your questions surrounding this. Hopefully my thoughts can lead to more questions for the adviser.
NB – I am not SURE on all of this, so please use my words only to ask more questions of advisers, and NOT as the gospel truth.
Benny
Thank you Benny, what you said make a lot of sense.
Anyone from this forum did this kind of arrangement before?
Cheers.
Anything to add @terryw?
Jason Staggers | JasonStaggers.com
http://jasonstaggers.com
Email MeCosts incurred before legal ownership can be deductible if you intend to keep the property to rent out. Its like borrowing to pay the deposit on an off the plan property – this interest could be deductible.
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
Thank you Jason and Terry. It is income deductible, so it will be claimed under ‘repair and maintenance’?
Probably on the rental property schedule.
Don’t forget that some things will need to be depreciated.check with your tax agent.
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
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