Claiming for repair (residential)

Residential Property rented for about 5 years
Property manager said a leak has developed in bathroom
Leak repaired and rotten floor repaired
Like for like material used

Repair cost $10k

Accountants says it is high so should capitalise to avoid ATO looking at it (only one property in this tax payer portfolio)

I say it is normal repair not a refurbishment so an expenses

Comments??

 

10k for a repair seems too high to me to get signed off without ATO looking into it. I'd listen to your accountant/s.

 

Sounds like it might be a repair.

It is high, but that is no reason to fear the ATO looking into it. Ask him if it could be justified in an audit.

 

Lose tax deductions and a potential refund because they dont know. Apply for a private ruling and wait 30 days. A strong case for repairs here.

At 30% tax rate thats a 3k refund. Ask them how much to prepare a private ruling should be a simple.one. might cost 660 for a very simple one but you are still 2.4k ahead.

 

Sounds like a repair.

No need to fear the ATO if you tell the truth (unless you do not know what you’re doing).

 

exactly @Ross Forrester and if he has a reasonably arguable position then penalties and interest would generally be waived in an audit. I think one of the roles of a tax adviser is ensuring the tax law is complied with. It is not however being so conservative you dont claim for things you legally can.

its like saying lets not claim all the property expenses. it might create a loss and we dont want the ATO audit. A big profit will make them happy.

 

I found a friend whose accountant made a mistake which cost him $50,000 extra in tax. I told him the accountant was wrong and his response was that he would keep it is as because he doesn't want to do anything risky and he might get an audit. straight forward CGT matter. All I could say is 'wtf if you want to donate $50k to the ATO unnecessarily, go ahead -a year's salary for you'

 

If you had recently bought the property and did that work, you would be on shaky ground claiming it as a repair.
But you have been renting it out for 5 years and the problem has happened recently. A floor exposed to water can rot in less than 5 years.
Did you get a building report when you bought the property? This is where they can come in handy. If there was no mention in the building report of a leak in the bathroom and some floor damage, you would be on firm ground.
As Mike said, a Private Ruling would be ideal. You can do it yourself - I've done it a dozen times. You download the form from the ATO site, fill it in, and then either fax or post it - yep, fax or post.
Just state what has happened and why you think the work should be considered a repair. The most important detail is the timing i.e. you have been renting it out for years and this is a recent problem. Repairing like for like is important, too i.e. you did not strip out the whole bathroom and take the opportunity to do a fancy reno. They will likely call you in a few weeks with a couple of questions, and then a few weeks after that they will send you your PR. Here is the link:

Applying for a private ruling

Scott

 

Dont know why accountants dont suggest it. PBRs are free to do. I give clients an option. I do and argue it for them or they do a simple one and hope it goes to a kind officer who helps them through it. The second option is free.

And worst case they say no. You arent in a worse position.

 

Thats my view too. Take the free route and get clarity.

Its seems like a repair but if more extensive works were also conducted at the same time then it may constitute a repair and new capital works. In absence of a basis of apportionment it could taint the deductible. Images and extent of invoice etc may help or harm the arguments too.

You want to present a solid case in BPR request that the works were confined to repair of defects and no more. Otherwise the total cost can be apportioned by the person who did it then it may assist... eg Builder says its $8K for repair and $2K for new install of a frameless screen and new electric warming rails and flooring.

 

Only the bare necessary done ...like for like!
No was not leaking a few years ago

 

Get that Private Ruling underway. It's very simple.

 

and worth a few thousand in potential tax refunds. people would take more efforts sometimes in strategies to increase income. this strategy is very simple and has the same effect. boosting your after tax return on investment

 

Considering the cost has been incurred its important to max deductions as this reduces net cashflow. For trivial extra effort.

 

TR 97/23 discusses this issue in detail and highlights relevant case law.