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capital cost or repairs

Discussion in 'Repairs & Maintenance' started by Veech, 11th Dec, 2015.

  1. Veech

    Veech Active Member

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    Hi brains trust,

    I have a property acquired 10 months back and tenants reported issues with plumbing issues. Plumber identified tree roots as the cause. Would this be under repairs or capital cost considering the property acquired less than a year? If capital cost, is it better to pay from equity loan which had couple of thousand left over in offset attached to that split?
     
  2. Chilliblue

    Chilliblue Well-Known Member

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    Are you repairing the pipes (repairs and maintenance) or are you replacing the pipes (capital cost)?
     
  3. Veech

    Veech Active Member

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    i will be repairing them. But i read somewhere that any repairs done with in one year of acquisition of the property should be added to the cost.
     
  4. Depreciator

    Depreciator Moderator Staff Member

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    The one year thing is not correct. The rule is that to claim compensation for repairs, you need to be fixing stuff that was damaged while you were renting out the property i.e. you can't claim for any pre-existing issues. It's a bit like life insurance, now that I think about it.
    Tree roots are tricky. You could argue that everything was fine when you bought the place but then there was a very rapid invasion of roots that caused damage. See what your accountant reckons. If we are talking a lot of money, your accountant probably won't be keen.
     
  5. Azazel

    Azazel Well-Known Member

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    What if it was pre-existing, but you didn't know about it?
     
  6. Depreciator

    Depreciator Moderator Staff Member

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    Doesn't matter. Otherwise everybody would do it. 'Yeah, I didn't notice the place was missing a roof. Didn't pick up that fire damaged kitchen, either.'
     
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  7. Marg4000

    Marg4000 Well-Known Member

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    It usually boils down to the condition of the property when you bought it. If the plumbing was working perfectly well (and 10 months later is the first you have heard of a problem) then I would think that you can safely call it a repair if you simply rectify the actual problem, I.e., eel to clean out pipes or possibly replace a small section of broken pipe.
    If more extensive work is needed (or chosen) then that is more likely to be a capital matter.
    As usual, keep good records and check with your accountant at tax time.
    Marg
     
  8. Azazel

    Azazel Well-Known Member

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    Nah, obviously a building inspection would note that sort of thing.
    Something that wasn't uncovered until later on.
     
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    IMO if it was a condition issue you were unaware of and a reasonable period since buying has passed without the tenants bring to your attention then you didn't acquire a property with a known defect so the initial repair issue is not applicable... Provided its a replacement of a section of pipe etc it would be suitable as a repair expense.

    The interest would be deductible either way if borrowed funds are used.
     
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  10. wobbycarly

    wobbycarly Well-Known Member

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    Sounds a little too logical for tax law. ;-)
     
  11. Azazel

    Azazel Well-Known Member

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    Thanks for the reply Paul.
    I had a real world example where the building inspection picked up some issues, we made the offer accordingly and budgeted for repairs.
    But after settlement found an issue that they missed with the bathroom floor. Covered by tiles obviously, so didn't know the full extent until later when the builder came to do a quote and ripped some tiles up. Couldn't tenant it until it was finished.
    Probably just unfortunate I guess, would be a bit of a risk to try to claim it as not an initial repair?
     
  12. Veech

    Veech Active Member

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    Thanks @Depreciator and @Paul@PFI. I will be repairing it via plumber using eel to clear the roots.


     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Here is something I posted in a recent thread $7000 bill got me regretting a purchase in Brisbane!:

    From PBR 24564
    https://www.ato.gov.au/rba/content/?ffi=/misc/rba/content/24564.htm
     
  14. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Fortunate that a BPR is not binding on another taxpayer. Thie issue with initial repairs is that its impossible to determine if arepair was either in existence or not. The relevant issue yet to be determined is if the repair was evident to a tenant soon after acquiistion. If so I would consider it initial. If not there is a strong case for a ordinary repair
     
  15. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Sounds like
    its a construction repair that will cost $300 +so hard to determine why its not Div 43 in any event. Sounds like a initial repair OR Div 43 so whats the issue ?
     
  16. Azazel

    Azazel Well-Known Member

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    It was in this financial year so I haven't really looked into it that much yet.
    And I must admit I don't know what Div 43 is off the top of my head.