Forums / Getting Technical / Legal & Accounting / New Investment Property – deductions

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  • Profile photo of psmedleypsmedley
    Participant
    @psmedley
    Join Date: 2019
    Post Count: 2

    Hi,

    We just bought an existing property as an Investment Property. We’re doing a few improvements to maximise the rental potential of the property.

    The ATO guide is pretty clear on most things in terms of things that can be claimed, one query though regarding painting the property.

    I see generally, this is considered as a repair, as the theory is that you’re painting due to damage caused – which cannot be done on a just purchased property as the purchase price reflects the condition.

    However, in our case – we’ve been told that we could rent the property ‘as is’ but if we redecorate in more neutral colours, well get increased rent – hence we’re going ahead with painting.

    Can these costs be claimed as an improvement – I don’t see anything like this in the depreciation schedule – and I’d hardly call it a capital improvement claimed over 40 years.

    Advice appreciated :)

    Cheers,

    Paul

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,376

    Hi PSM,
    Welcome aboard !! There are others on here who are able to quote you chapter and verse on all of those things (i.e. accountants) but, in case you are “hanging out” for an answer this weekend, let me share what I “think” is correct (but I am NOT an accountant, so beware…)

    As I understand it, all you have said about not being able to claim it as a repair is correct. That leaves “how do you get to claim the cost?” And I think it would go as a Capital Cost (almost like it is part of the Purchase Price – you added value to the property, sort of like “buying it for a few thousand dollars more”). Like you, I don’t think it is any part of that 40 year “Capital Works deduction” either. Instead, it would become part of your Cost Base, so any Capital Gain on sale would be a few thousand $$ less to cover that cost.

    Now, as I said, you CANNOT rely on my words there – but hopefully others will swing by to give you the “good oil” later on.

    Benny

    Profile photo of psmedleypsmedley
    Participant
    @psmedley
    Join Date: 2019
    Post Count: 2

    Hi Benny,

    My reading agrees with your assessment – I’m just hoping we’re both wrong :)

    As you say, worst case there’s ~$3k to offset the capital gain when we eventually sell.

    Cheers,

    Paul

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,376

    Hi Paul,
    One further thought that struck me over this – and that is one could borrow the funds to complete the painting of the place – as with borrowing to purchase, you would be “borrowing for investment purposes” to cover what is actually a Capital Cost, so Interest could (should?) be deductible against your profits.

    Like, it keeps $3000 in your pocket that might be going toward saving a deposit on your next property. Of course you would need to weigh up the benefits of doing so, versus not doing so. It could cost mere cents per week in Interest, and the interest would be Tax Deductible too (it isn’t currently). Meanwhile you keep the $3000 as an Offset against the main mortgage…. Food for thought ;)

    Of course, check this out !! You know me,

    Benny

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