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Costs allowed on sale of investment property

Discussion in 'Accounting, Tax & Legal' started by DavidJ, 10th Mar, 2009.

  1. DavidJ

    DavidJ Member

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    I am in the process of selling an investment property which is now under contract. Before putting it on the market I spent two weeks painting it, putting in a new fence and various maintenance issues ( changing bathroom taps etc).
    I think I can claim the fence in the cost base of the asset but wasnt sure about the R&M since it was done for purpose of sale and wasnt available for rent after these expenses were incurred. Can they also be included in the cost base or should they form part of the R&M for the property for the year?
    Can anyone help?
     
  2. AsxBroker

    AsxBroker Well-Known Member

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    Hi David,

    Not that I have an investment property, but IMHO...

    Repairs and maintenance are (in my understanding, not that I've ever owned an investment property, so don't take it as gospel) seen as expenses.

    Capital improvements or new additions are seen as an addition to the capital cost/base.

    Someone like Jacque may be able to clarify?

    Cheers,

    Dan

    PS Speak to your qualified accountant or tax specialist.
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I believe in this case that money spent preparing the property for sale is capital in nature and will be added to the cost base. Would like one of our resident accountants to confirm if this is the case.
     
  4. Rob G.

    Rob G. Well-Known Member

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    Where "repairs" are to correct wear and tear from your use of an asset for income producing purposes, they are usually deductible in the year you incur the expense.

    Repairs involve restoration of a PART of an asset, so a complete replacement of the fence rather than patching it might be regarded as an improvement - you will need to check this one.

    Where an asset has ceased to be income producing, it is better if the repairs are carried out in an income producing year (i.e. available for rent) to avoid dispute with the ATO who might argue that the actions are too remote from the income activity. (TR 97/23)

    My concern with the property now under contract is the ATO might argue that the "repairs" are to get a better price (capital gain) and so are not for income purposes and should be capitalised. This is so because the repairs were incurred after the property was available for rent and immediately before being offered for sale. (12 TBRD Case M2)

    I think you need to chat to your Accountant about the finer details of your expenses, i.e. what was done, when and for what purpose just to be sure.

    Cheers,

    Rob
     
    Last edited by a moderator: 11th Mar, 2009
  5. DavidJ

    DavidJ Member

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    Thanks

    Thanks everyone for your input. I think it confirms what I had thought that since the repairs were carried out after the tenant moved out and for the purposes of sale that they are of capital in nature. It doesn't really impact the tax I pay since it will just come off the capital gain on sale but I just wanted to classify things correctly.
     
  6. Rob G.

    Rob G. Well-Known Member

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    Unfortunately it does affect how much tax you pay.

    Costs capitalised to a discount capital gain are effectively halved deductions as well as being deferred until sale !!

    Cheers,

    Rob
     
  7. DavidJ

    DavidJ Member

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    50% of deduction

    Thanks Rob, I agree capital costs will only effectively get 50% of the deduction, I hadn't thought that through!!