Are new items as maintenance fix not claimable?

Hello,

In an IP, if something was replaced new as a course of fixing a reported problem, say a hot water sytem -

1) Does this 'fix' then become a part of depreciation schedule and is not claimable as a maintenance item ?
2) What do new IP owners do (who do not get the benefit of depreciation) ?

Cheers,

 

Yes. Possibly or a depreciation schedule to the tax return.
Claim a CGT adjustment

 

How much did the replacement system cost? Have a read on the ATO website regarding immediate write off (> $300) and low value pooling deductions ($300 - $1000).

 

I often think the law has not kept pace with how we generally ‘fix’ things in properties. If a hot water service is broke, we rarely repair nowadays, just replace with new. At the very least, depreciation schedules should reflect effectively shorter life of assets.

 

The law hasnt kept up in many areas. Trust deeds for example still need to be wet signed despite this being the age of electronic signing.

 

The Commissioner updates the schedules of asset effective lives regularly. 12 years for a gas/elec HWS meets closely with typical age despite it last review in 2004. The units may now be called heat pumps and all sorts of other hybrid types but their life remains 10-15 years. Also if using the diminishing value method and pooling the write off period will be shorter than the economic life based on "effective life". eg HWS Prime cost = 18.33% or 12 yrs vs DVM at 6yrs (sort-of) . And as it has a cost that is $400+ its depreciated. Replacement is not deductible for capital expenses. Just because the new unit fixes a defect doesnt mean its deductible.

Electric cars dont yet get a mention. Or modern solar battery systems. In time as use becomes more broadly accepted we could see issues with these items changing eg Tesla are soon to sell roof tiles that replace panels. Are they Div 43 or plant ? What happens with the batteries when they are replaced. In theory its a repair. Or is it a new battery cell replacemnet unit ?

And the ATO seem way off with computers. However taxpayers can determine their own effective life sometimes

Uniform capital allowance system: changing a depreciating asset's effective life

 

Fair enough, although lifespans are arbitrary at the best of times. How many kitchen cabinets and bench tops these days are going to go forty years without a renovation? It comes down to a matter of people just having to follow the ATO's rules.

We found an extreme example with Norfolk Island and their entry into our taxation system last year. Normal effective lives go out the window for them: because of the high costs of getting assets onto the island (particularly the larger ones), the locals tend not to replace them at the same rate as we do on the mainland, instead repairing them well beyond their normal effective lives. Many clients there wanted to know if they could dictate their own effective lives and we had to tell them that it was between them and the ATO.

 

Yes not all taxpayers are the same.

 

So, can someone give a clear answer to the following -

The light/ceiling fan unit in a bedroom as gone kaput (motor has blown - not worth repairing), so a whole new unit needed to be installed. The invoice is for a fraction over $400 - but I'm not sure how much of that is for the fan itself, and how much is for the labour.

Does it become solely an item for inclusion in next year's depreciation schedule, and none of the cost is claimable as 'repairs and maintenance' on next year's tax return? Or is it the other way around? I still get stuck on how to deal with this. To me, it seems logical that the fan would be depreciable (as an object within the property, that goes down in value with age), but the cost of installation would be a repair/maintenance bill that can be claimed on next year's tax return.

I don't like being told "Just give it to the accountant - they'll know what to do with it" - I would like to know for myself, so I know how to record it, correctly, on my own spreadsheet.

Any help/insight would be greatly appreciated.

 

I think you'll find you can calculate your own effective life of an asset as long as the tax man is happy with your calculation.

Regarding a HWS I always try and get it repaired unless it's beyond help. Thermostat gone - replace it. Element gone - replace it. Valves stuffed - replace 'em. These repairs are a lot cheaper than replacing the whole unit and you'd be surprised how long the system keeps going.

 

I'll let you know in a few months - recently spent $50k on roof maintenance about 1/3 the cost of replacement.

 

As a general principle the total cost of your new fan/light forms your cost base. Ie this could include delivery fees, installation or other costs to get the new asset in place and ready for use.

Obviously I haven’t seen your specific invoice for your situation but this is a general accounting principle.

On your depreciation schedule however this could be depreciated quite quickly due to the relatively low cost. Check with your qs and accountant for specifics.

Good luck!

 

My understanding is that you need to depreciate the total cost of the ceiling fan, including the cost of installation, over the life of the item. According to the ATO's "Rental Properties 2018" guide, a ceiling fan is to be depreciated over 5 years.

 

Depending on the cost of the fan it may be able to be allocated to the low value pool

 

Depending on the cost it could be a write off. I bought a fan at Bunnings for $125. It replaced another. Sparkie charged 75 to install it.

 

Until you end up with a situation like the farmer boasting about his favourite axe which to that point had lasted him ‘for as long as he could remember’. He’d only replaced the handle 6 or 7 times and the head only 3 times.

 

The big Aquamax I got is about 14 years old. It cost about 1K new and I'd say I've spent a total of about $600 in repairs in that time. All fully tax deductible as each repair was under $300.

Sure, if the HWS was breaking down more regularly then I'd consider replacing it.

I'm very surprised it's last that long but then I realised it doesn't get much use. Those bogans in the Druitt don't wash very often lol

 

I see what you're saying about splitting the cost into two categories but that's generally not the way things are done. You claim it all in the one category.

While we would normally defer to an accountant's advice if they want to claim something as a repairs & maintenance cost, it doesn't sound like this is eligible. Normally that's only claimable on something like this fan if you keep the existing unit and fix it. It doesn't matter that the previous unit was unusable. However, if an accountant gives you the all clear on a repairs & maintenance cost (and can argue for that interpretation) then perhaps there's something I'm missing in this scenario.

This is something I'd like to know more about. Usually you need a very good reason to do this and it can't just be done ad hoc.

This is our position based on the facts presented.

This is correct because the item (including installation) has a starting cost of under $1000. The cut-off for immediate write-off is $300 (and again, you can't split the cost in order to conveniently get it under this amount).

 

If its $300 or more and its a replacement in whole or in part its unlikely a repair cost. Even if its cheaper to do it that way. Its like buying a new Camry - Its a new asset. The old one is disposed of. Can you write it off ??

If its $300+ and it is a portion of the unit (eg AC compressor) then all the cost may be deductible.

After the $300 test is failed then consider the depreciation rule/s. The manner of depreciation may be favourable in a pool BUT it will be at half rates in the first year BUT if acquired on 29 June its eligible for same deduction as one acquired on 1st July the prior year.