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Deducability of Pre Purchase Inspections

Discussion in 'Accounting, Tax & Legal' started by DaveA, 9th Mar, 2007.

  1. DaveA

    DaveA Well-Known Member

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    I know if you costs to inspect the property can not be claimed as an individual.

    However what about in a company/trustee/corporate trustee circumstance. I would imagine a company it would be classified as a business expense (no link to test for producing assessable income) but what about in a trust?

    I imagine it comes down to if there is a property inside the trust already (or cash). Would anybody be able to give me any direction for this one??

    Cheers
    David
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I'll defer to Nick's expertise on this one ... but I think you'll find that for a company to be able to justify this as an "expense", they would need to be "running a business" of investing or trading property. Simply owning a property through that structure doesn't mean you are running a business ... you also have to pass the duck test (ie actually be running a business in a business-like manner).

    Given that corporate trustees generally don't (and probably shouldn't) trade in their own rights - this also applies to trusts/trustee companies ... you aren't running a business.

    Whether this is actually the case or not - I'll have to get Nick (or one of our other resident accountants) to verify. Nick is currently OS, so might be a few days before he can respond.
     
  3. DaveA

    DaveA Well-Known Member

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    Yes sorry i should of mentioned something like that... i think u need about 4 properties before its business like....

    the trust is still a little bit confusing to me though...

    thanks for the initial kick off sim...
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I think you'll find that the ATO deliberately refuses to publish exact numbers for these types of things ... really need professional advice (and someone who will back you up in an audit) if you were to ever go down that path.
     
  5. DaveA

    DaveA Well-Known Member

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    i do argree with the professional advice... im no where near 4 properties so all im really doing is planning....

    additionally i wouldnt want to hold properties in a companies name anyway (no CGT, negative gearing), but as you mentioned, i assume the same rule will apply between trusts and companies....
     
  6. Nigel Ward

    Nigel Ward Team InvestEd

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    I'll also have to defer to Nick's expertise on this one. But my gut reaction is that building inspection costs are of a capital nature and would form part of the cost base of the property for CGT purposes...

    But let's wait for Nick to return from China for the definitive word. :)
     
  7. NickM

    NickM Co-founder Staff Member

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    Hi Dave
    Pre purchase building costs are neither deductible nor form part of the cost base. Blackhole expenditure.

    In a trust that is in business, these expenses may be claimed as a deduction, capital or possibly income

    Whether it does is a question of fact and owning 1,2 or 6 properties may or may not qualify.

    i think i am hearing too many political ads - starting to sound like one !
    you can, you cant or maybe
    Nickm
     
  8. DaveA

    DaveA Well-Known Member

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    thanks nick, hope u enjoyed china

    are there any other blackhole expenses that an inexperianced investor wouldnt be aware of?

    so this all depends on the personal circumstances of the business/trust

    could anything be done to help the question of fact in your favour, or this is something you should apply for a private ruling on?

    If this is getting too much like personal advice thats fine dont answer it and ill discuss it with you once i get to this position..

    cheers
     
  9. Nigel Ward

    Nigel Ward Team InvestEd

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    It's actually a fairly complex mix of fact and law as to whether or not you're carrying on a business. And the answer in the tax context may differ from other contexts. Peversely, you can be carrying on a business even though something's a one-off deal yet in different circumstances a repeated money making enterprise/investment with systems etc can be deemed not to be a business. Weird, but that uncertainty helps keep all the lawyers and accountants in business ;)