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Need help regarding renovation of a property and tax

Discussion in 'Accounting, Tax & Legal' started by vsdabhi, 13th Oct, 2009.

  1. vsdabhi

    vsdabhi Member

    6th Oct, 2009
    Perth WA
    We are buying a 4bdr, an old property. We need to replace Gutters and down pipes, painting inside out side, new carpet for 3 BDR and plaster of 3 walls, some repairs in kitchen.
    Do we need a valuation report before renting it out. What is benefit of doing valuation? Do we need a depreciation report as well?
    I am just learning IP things, it is my 2nd IP but I never thought about all these things like tax benefits etc.
    Thanks a lot.
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    There's no reason that I can think of to get a valuation report done before you rent it out.

    If you keep receipts of everything that was spent in preparing the place for rent, you don't need a depreciation report - you just claim (or work out depreciation) from your actual costs.

    However, depending on the nature of the property, there may be some depreciation available for existing fixtures or capital works that were done when you purchased - a depreciation report might be worthwhile there.

    If the property is old (more than 25 years or so?), there probably won't be much depreciation available ... however, if there was an extension built, or new structure such as a shed, or new appliances (stove, HWS, heater, aircon, etc), there may be some depreciation claimable from them. It kind of depends on the situation as to whether it is worth getting a depreciation schedule done.

    Any work you do to prepare the property for rent will not be deductible, and may need to be added to the cost base (decreases the capital gain when you sell). If you do claim capital works deductions for improvements you make, this will reduce the cost base (increases the capital gain when you sell).

    You should download the Rental Properties guide from the ATO which explains capital works and things you can claim: Rental properties 2008-09

    For the most part, I would leave this all to my accountant to sort out - let them know what you are planning on doing and hopefully they can advise you on the best approach to managing your tax affairs with your properties.