CGT-can expenses be claimed on renovations

Hi im just trying to wrap my head around this capital gain tax thing. Firstly me and my partner are looking to buy our first home. However, we would like to buy an unrenovated house and do some cosmetic work to it and then resell.

My questions are can you deduct expenses such as paint, trade wages, staging furniture etc. from the capital gains tax?

Secondly, I don't quite understand the 6 year rule on reducing this tax. If someone could explain it in laymans terms that would be great.

 

Yes - under the exemptin applies.

Why would there be staging if you are purchasing?

Are you intenting sale at a profit?

For the 6 year rule see
Tax Tip 23: The 6 year Absent from Main Residence Rule https://propertychat.com.au/communi...-6-year-absent-from-main-residence-rule.3075/

 

If you spend an amount of money improving an asset the money spent will reduce the taxable profit on the assets ultimate sale.

There are also other strategies to reduce the taxable profit on sale.

 

Ok that makes sense. As for staging furniture. I was more implying buying furniture to fit the house to make it look nicer when it comes down to selling it. But I don't know if this would be tax deductible.

 

I dont understand the original post.

1. Our first home
2. Tax ?

If a home is an exempt asset then its exempt. The Main residence Exemption (MRE) applies to a home. Whether you make a gain or a loss doesnt matter as its not taxed. The exception being acquisition to produce a profit which Terry mentions probably because you mentioned staging...That may be a concern ? If you are seeking to use your home to produce a profit the MRE may not even apply ? And neither may CGT either !!!

The 6 year rule operates if you move out. Maybe. The work you did would not add to the costbase itself BUT s118-192 would apply and a higher market value may draw a line at a higher value for CGT.

Personal tax advice would seek to understand what you are asking, why and what your intentions are and apply this to provide advice.

 

Hello.

Your question is difficult to answer as their are so many factors to consider.

1. If you rent furniture so your private home so it gets a better sale price the cost of furnishing
is not tax deductible. The profit on sale of your private home is tax free so any cost
associated with getting the tax free profit is not tax deductible.

2. If you buy a home, make it your main residence, and then choose to move out: the sale of
the home might still be tax free under the 6 year main residence exemption. In that case the
cost of furniture rental to facilitate sale is not tax deductible as the sale proceeds are not tax
assessable.

3. If you run a business of buying a selling homes then the cost of advertising your home for
sale will be tax deductible. A similar example is if you run a business of buying and selling
an fruit in a shop - the cost of an advert for your fruit shop is tax deductible. If you rent
furniture for a certain period (as part of the advertising) and the home does not sell then the
cost of the furniture rental for that time is still tax deductible.

4. If you buy a home with an intention to rent, and you make a few minor changes to the home,
including some rental on furniture for a 2 week advertising period, the cost of the furniture
rental will be a capital cost associated with sale and factored into the capital profit on the sale
of the home.

5. If you buy a home, live in it, and then buy furniture to use while living in, then the cost of
furniture is not tax deductible while you live in it. If you use the furniture later on to look
better in home opens I would venture to say that the use of the furniture for home opens was
incidental to your underlying private purpose. This would indicate that the furniture cost is
not tax deductible even if you did pay tax on the sale of the home (which might happen if you
used the main residence exemption for another property).

It is unlikely that you are running a business based on the feel of your email. It feels like you are going to live in a house and do some minor improvements on the weekend. In that case the first option would apply.

There is a depth of other items to consider but I have limited my response.

Thanks

 

Thank you Ross!

 

There has been doubt in the past whether the hiring or purchase of furniture for the purpose of influencing a prospective buyer's decision to buy, constitutes 'costs of advertising to find a buyer' within the ordinary and generally understood meaning of the words 'advertise' and 'find'.

the ATO now recognises that there have been emerging trends in real estate practise to promote the marketing advantages of such expenditure. On balance it is now arguable that the hiring or purchasing of furniture can be regarded as a 'cost of advertising to find a buyer' where the purpose of the expenditure is to find a buyer by demonstrating, displaying, exhibiting or featuring the saleable qualities of the property. For example, furniture can be used to demonstrate the good qualities of the property (for example, the size of the rooms) or to show that the less-desirable qualities of the property can be managed in a practical or pleasing manner.

Thus the expenditure incurred in purchasing furniture be said to fall under the second limb of the cost base as it constitutes the 'costs of advertising to a buyer' and is therefore included in the calculation of the property's cost base. It is essential to note however that this only applies to the items of furniture that are sold with the property, not items that are retained for personal use. Any items that were retained by you for personal use are not able to be included in the cost base calculation.