Join our investing community

tax deduction on PPOR to IP

Discussion in 'Accounting, Tax & Legal' started by talbashan, 14th Jun, 2006.

  1. talbashan

    talbashan Well-Known Member

    Joined:
    21st Sep, 2005
    Posts:
    58
    hi all,

    i am currently living in my PPOR but as we are moving overseas at the end of this year, it will become an IP. here is the question:

    can expenses i make now (eg new light fittings, paint etc) be tax deductable for next year? (seeing part of the year, this property will be an IP)
    alternativly, if the answer to the above is 'no', can a depreciation schedule on those expenses be utilised to minimise tax?

    thanks,
    tal
     
  2. TryHard

    TryHard Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    863
    Hi Tal

    Someone more knowledgeable will clarify, but I'm pretty sure you can't claim that sort of stuff in the first 12 months of the property becoming an IP.

    Therefore a Depreciation Schedule might take into account the value of some of the things you've done and give you the depreciation allowance.

    When I did my last DepPro schedule they told me all the expenses incurred in the first month following change of ownership could be taken into account in their figures - the rest had to be carried over into the accountants calculations for the year. This was only when it changed ownership though, which yours won't be. I dunno why this one month thing applied ... Nick ? ;-)

    Cheers
    Carl
     
  3. Mark Leo

    Mark Leo Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    59
    Tal,
    Nigel might know better but as far as I undrstand it the answer is 'no' (to improvements made while the property is still your PPOR) and 'yes' (for the depreciation schedule). The reason is that the asset must be an income producing asset at the time that you claim the expense. However the depreciation is OK for the time that the property is an IP, because this is claimed over a number of years.
    Anyone got any improvement on this?
    Mark Leo.
     
  4. talbashan

    talbashan Well-Known Member

    Joined:
    21st Sep, 2005
    Posts:
    58
    hi mark,
    you mentioned that the property has to be income producing at the time that the deduction is made. well, it will be. eg: i will claim the deduction at the end of june 07' for a paint job done in july 06' while i was still living in the property. note, the property will become an IP in about dec 06'.

    tal
     
  5. Mark Leo

    Mark Leo Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    59
    Tal,

    For a property expense to be deductible the receipt for the expense must be dated during a time that the property is actually producing income ie it is an IP. So if the receipt is dated Jul 06 and you are still living there, then no can do. However a possible solution for you would be to wait until you move out, get the painting done, and get a receipt ie the place only has to be available as an income producing asset for the deduction to be allowed. This option may be less disruptive to your life as well??

    Mark Raymond from Navra will be able to advise you in detail.

    Mark.
     
  6. TryHard

    TryHard Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    863
    Hmmm that thing about the first 12 months I half-remembered must be repairs that can't be claimed as deductions in the first year following a purchase. Or did I just make that up ? :p
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    The whole "can't claim expenses in first 12 months" thing is a myth anyway. Find me documentation from the ATO that states this!

    I have heard many people make this claim - some of them accountants ... but mostly I think it is an over-conservative number applied incorrectly as a blanket rule, when only guidelines exist from the ATO.

    It is correct that you cannot claim expenses that are effectively part of the purchase of the property (eg preparing a property for rental - painting, repairs etc) ... but the ATO rarely gives black-and-white figures as to what is acceptable and what isn't.

    You should get your own advice on this ... if your accountant says 12 months ... then go with 12 months ... they will be the ones who are (hopefully) going to back you up in an audit - so better to be cautious.
     
  8. TryHard

    TryHard Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    863
    Actually Sim now you say that I think maybe it WAS a previous accountant who put that thought in my head, and I dare say he was attempting to over-simplify the issue. I've switched accountants (poor NickM being the fortunate recipient of our custom!) and expect this year will be much easier ;-)