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IP Costs - Preparing to Rent

Discussion in 'Accounting, Tax & Legal' started by Tronc, 5th Apr, 2008.

  1. Tronc

    Tronc Active Member

    Joined:
    9th Jan, 2008
    Posts:
    27
    Location:
    ACT
    Hi there

    Will be renting out my PPOR in May 2008 indefinitely. However, there are a few costs to be incurred in order to get it up to the required standard. What considerations are there for these costs in relation to tax system and deductibility: Examples are:

    - laying new flooring/carpets
    - installation of oven
    - installation of vanity & general bathroom maintenance/repair
    - completion of some basic landscaping/garden

    What's the most tax effective way to do these? Would they be better done at another time (next FY). Any feedback much appreciated. Am seeing my Accountant next week, but would be great to have a few things lined up in my head so I can ask the right questions.

    Thanks

    Tronc
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Generally costs incurred to "bring the property up to scratch" are not deductible, but rather add to the cost base of the property (ie you get to claim it when you sell).

    A rule of thumb is improvements made within the first 12 months would typically be considered part of the cost base.

    Personally I have no problem with claiming minor repairs (making something already there functional - as opposed to replacing it with something new, eg ovens, vanities, fences) ... but you want to check this with your accountant as to what they are happy for you to do.

    It may come down to a simple cost-benefit analysis ... if you don't fix the oven/bathroom/carpets now, how much will that cost you in being able to get premium rent and a good long-term tenant ? Once you do have a tenant, it will be more difficult to replace things - since you have to inconvenience them to do it.

    Anything that works and is clean and safe to use, I would tend to leave until later to replace ... especially if the rental market is tight and finding a tenant is easy.
     
  3. Redwing

    Redwing Well-Known Member

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    They are depreciable though and you will get to write the cost of these items off over a number of years when the property is a rental.

    Its worth looking at this site as well to get an idea of depreciable and non depreciable items, costs etc:

    Depreciator - Quantity Surveyor prepared Tax Depreciation Schedules

    You will also need to ensure you get a valuation of the PPoR just prior to rental in case you sell at a later date; there is also the six year exemption rule to consider if you do not have another PPoR, i.e. provided the property is rented out for less than six years before it’s sold and the owner doesn’t have another principal place of residence, then the main residence exemption still applies.

    Funny thing about the six year rule is that it used be three years....it was changed to six as most overseas tenures for Politrickians are....six years :D

    PS: If you go over six years you may still get a partial exemption
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Not necessarily.

    I quote from Page 12 of the ATO publication: Rental properties 2006-07

    ... even though this is an existing property - it is still considered "newly aquired" from the perspective of when it became available to rent.

    These costs will generally be considered capital in nature if performed before (or soon after) tenants move in.