Capitalising PPOR expenses

Discussion in 'Accounting & Tax' started by chylld, 10th Nov, 2016.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    That can be claimed as per normal.
     
  2. chylld

    chylld Well-Known Member

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    Using your numbers, the scenario would be a choice between using $100k from the offset for the renovations, vs using $100k from a LOC. Both would result in 5% non-deductible interest whilst the property is still a PPOR.
     
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  3. Rob G

    Rob G Well-Known Member

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    You didn't actually state that you had $100k in your offset. I had to fish around to see if you had access to the funds but were wanting to borrow just to get a deduction. The OP was deficient in details.

    It would likely be better to leave it there and renovate later when you want to convert to an IP and save yourself a pile of non-deductible borrowing.

    When its withdrawn then effectively you have interest deductions in relation to this. It could be used for the reno or you could borrow a further amount for the reno as an investment redraw.
     
  4. chylld

    chylld Well-Known Member

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    The OP was deficient in details about calculating whether or not it would be worth it, because it wasn't asking about that in the first place. The OP just asked which expenses can be paid with a LOC in order for interest to be tax-deductible at a later point.

    The property is currently my PPOR, and I was interested in doing some renovations to improve our quality of life while we're still living here. Again, non-deductible borrowing now with the aim of the same borrowing becoming deductible in the future.
     
  5. Rob G

    Rob G Well-Known Member

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    But a DCF analysis shows that bringing forward private consumption with borrowings substantially defeats future tax deductions.
     
  6. chylld

    chylld Well-Known Member

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    Versus paying for said private consumption using PPOR offset cash?
     
  7. Rob G

    Rob G Well-Known Member

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    Same thing for offset.

    You would not have incurred the (non-deductible) interest expense if you had left cash in the PPOR offset account.
     
  8. chylld

    chylld Well-Known Member

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    Soooo given that my question was whether to fund the expense using offset cash or LOC funds, your answer is to not have the expense in the first place?
     
  9. Rob G

    Rob G Well-Known Member

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    Investment 101.

    Defer personal consumption.

    If you think that a reno will increase future rental yields then it may be better just prior to actually renting.

    Bringing the reno forward for personal enjoyment will incur short term non-deductible expenses and defer future tax deductions and rental increases. You will have to weigh that up against the 'value' you get from living in a renovated home as your PPOR in the near term.
     
  10. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Yoda (Chylld) talks in the third person does it. Careful of Rob he is a master of the light sabre.
     
  11. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Strategy - Defer obtaining a QS report to defer asset depreciation until its an IP.
     
  12. Rob G

    Rob G Well-Known Member

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    Ummm ....

    If YOU incur the construction expenditure then YOU must retain your records for claiming future depreciation & capital works deductions.
     
  13. chylld

    chylld Well-Known Member

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    You appear to be answering questions no one in this thread has asked. This thread is about how to pay for renovations, not whether or not to do them in the first place.

    That was in response to Rob referring to the "Original Post":

     
  14. chylld

    chylld Well-Known Member

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    Who ever suggested otherwise in the first place?
     
  15. Rob G

    Rob G Well-Known Member

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    You question related to the ability to claim future interest expense deductions on borrowings to renovate a PPOR today.

    The answer is "probably" for capital construction and depreciating assets.

    However, the the real monetary (present day value) benefits will rapidly decease if the delay in becoming an IP is very long.
     
  16. Rob G

    Rob G Well-Known Member

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    I response to Paul's suggestion of using a QS report.
     
  17. chylld

    chylld Well-Known Member

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    Yes that is what my accountant has said as well.

    This is where things become subjective and dependent on what each person aims to achieve from a renovation. If it is purely for increasing IP yield (e.g. adding a carport when I don't have a car myself) then yes, it is best left until the property becomes an IP. For other things though (e.g. a new bedroom, where I really could use the extra space) there is a lifestyle benefit that can be realised off the spreadsheets.

    This thread is about the future deductability of interest in the latter scenario, hence why it was posted in the "Accounting & Tax" forum.