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Claiming for tax purposes - repair & maintenance, vs capital works

Discussion in 'Accounting & Tax' started by KayTea, 24th Jul, 2016.

  1. KayTea

    KayTea Well-Known Member

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    Hi guys.

    It's my first year with an IP, so pulling together all the paperwork for my annual tax return is proving to be a lot more challenging and time consuming than anticipated (and I'm a very organised person, so this is very frustrating).

    I'm trying to determine, for some expenses that the property has incurred, whether they are repairs, or capitals works. Based on my reading of the ATO site, the replacement of a defective item that has a function in it's own rite (e.g. a stove top), is a capital work, and needs to be declared within the depreciation schedule. However, work to repair an item is just that, a repair, and can be claimed outright.

    So, if I get the broken cooktop replaced, is the cost of the actual cooktop claimable as a capital item, but the payment of the tradesman to install it seen as a repair cost? If I have one invoice that just puts the whole lot in as one expense e.g.. "install new cooktop = $850" which covers both the item cost, and the installation cost, do I just put the whole expense within the depreciation schedule?

    Or, for example, if I buy new tap ware, but get a plumber to install it, how do I apportion the expenses?

    TIA,
    KayTea
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    installation expenses are included in the item cost for tax (not claimed separately)

    If you replace a broken stove with the same model it might be a repair. If you replace it with a different one it may be an improvement and therefore be depreciated over a number of years.
     
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  3. Marg4000

    Marg4000 Well-Known Member

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    It appears you have owned the IP for less than a year.

    Repairs are expenses that return the property to the condition when you bought it. Everything else is a capital improvement.

    Was the cooktop broken when you bought the property? New Tapware is clearly an improvement.

    So in the first year you will be very limited in what is considered to be a repair.
    Marg
     
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  4. KayTea

    KayTea Well-Known Member

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    Thanks, @Marg4000.

    What if the new tap ware was purchased in order to replace tap ware that was broken and no longer functioning correctly (ie. it was not purchased for cosmetic reasons, but function ones). When I bought the property, it had a functional tap, so why isn't replacing the broken one with a new one considered a repair, rather than a capital work to be deducted?

    I'm finding some of this 'repair' vs 'improvement' stuff a bit 'murky'……...
     
  5. Scott No Mates

    Scott No Mates Well-Known Member

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    Considered using an accountant?
     
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  6. KayTea

    KayTea Well-Known Member

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    Yeah, Scott - I do. But usually, to help keep the cost down, I take in summaries (where I've already tallied up the various categories etc), and he just processes the various values and puts the final submission together, gives advice etc.

    Being the first year owning an IP, I'm just not too sure (in some cases) how to classify some of the expenses - either 'repair' or 'capital work'.
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

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    Put them under maintenance and let the accountant decide if they fall into the small value pool and written off or capitalised . Leave notes querying where they'll have to advise.
     
    Last edited: 24th Jul, 2016
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  8. shimmy

    shimmy Well-Known Member

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    Hi Kay

    I'm in the same position as you regards first IP and first Tax even though only had the IP for a few weeks last FY.

    When did you do your repairs or replace items? Was it before the place was rented? Did the damage to the taps etc occur as a result of renting?

    The ATO link here pretty much explains it:
    Rental properties - claiming repairs and maintenance expenses | Australian Taxation Office

    "You cannot claim the cost of repairing defects, damage or deterioration that existed when you obtained the property, even if you carried out these repairs to make the property suitable for renting. This is because these expenses relate to the period before the property became an income-producing property..."

    I was hoping to be able to claim repairs made to get the place up to scratch for renting and even though I had the place advertised for rent I still can't claim those repairs and improvements i did as repairs. So I'm claiming capital works for it. I'm also getting a depreciation schedule done (inspection is tomorrow) to squeeze out as much as I can out of the old house.

    If anyone else with more experience than me wishes to refute this I am more than happy to take your advice! I would love to be able to claim as repairs.

    Good Luck!
     
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  9. Depreciator

    Depreciator Moderator Staff Member

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    Shimmy, your understanding is spot-on.
     
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  10. Phase2

    Phase2 Well-Known Member

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    I'd seriously consider getting a depreciation schedule done by a professional quantity surveyor. I think you'll be surprised at how much you can claim, and the cost of the QS is deductible too.

    Otherwise, you should be able to write-off anything that you install/replace that costs under $300. ATO - Capital Allowances

    A dep. schedule will make life so much easier for you.
     
    Last edited: 25th Jul, 2016
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  11. Depreciator

    Depreciator Moderator Staff Member

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    'Otherwise, you should be able to write-off anything under $300, over that and you're into repair vs improvement world.'

    You're confusing Assets and building stuff.
    The under $300 immediate write-off applies only to Assets, typically things like: smoke detectors, exhaust fans, small heaters, one-off blinds, cheap rangehoods etc.
     
  12. Phase2

    Phase2 Well-Known Member

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    I wasn't confused, but I can see that my post was confusing. I've amended it accordingly, thanks!

    @KayTea raised the point about a tap replacement. If it was just a one-off, and it cost less than $300 for supply and install, then it can be claimed as an instant write-off. If it was part of a renovation, or if a number of taps in the house were being replaced, then the costs would have to be depreciated.

    Good luck finding a plumber that charges less than $300 to supply and install a new tap.. :p
     
    Last edited: 25th Jul, 2016
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  13. JacM

    JacM VIC Buyer's Agent Business Member

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    Much easier to provide a spreadsheet with figures and descriptions and let the accountant decide what kind of expense it is.
     
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  14. Depreciator

    Depreciator Moderator Staff Member

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    Phase2, you're still confused about what is an Asset vs Capital Works. I'm only being pedantic so the confusion doesn't spread. A tap is NOT an Asset. So the under $300 thing does NOT apply to it.
    If somebody installs a complete, brand new tap and it costs, say, $250 they claim it at 2.5% per year. That's because a tap is not regarded as an Asset. The Effective Life of a tap is 40 years as with all Capital Works.
    If a tap has problems and a plumber needs to replace the spindle or something like that to get it working, it's a repair.
    The ATO have a great publication for rental properties. At the end of this document is a table that sets out what the ATO regards as Assets vs Capital Works:
    https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/Rental-properties-2015.pdf
     
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  15. Phase2

    Phase2 Well-Known Member

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    OK Thanks for clarifying @Depreciator. I didn't realise that taps were considered capital works, nor hard-wired light fittings. Weird that hard-wired light fittings are capital works, but ceiling fans that require hard-wiring are not... Cheers :)
     
    Last edited: 26th Jul, 2016
  16. Phase2

    Phase2 Well-Known Member

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    As long as your accountant knows.. mine apparently doesn't. Told me I could claim a light replacement as it cost $290 installed. On face value it makes sense, but according to ATO's definition of an asset vs capital works, it does not. I'll go with the ATO on this.
     
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  17. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Your accountant is actually correct. Yes it is a capital item but a individual capital item costing under $300 (installed!!) is fully deductible.
     
  18. Phase2

    Phase2 Well-Known Member

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    That's what I thought.. I presume the same logic applies to a tap replacement? Or is there some twisted logic I'm missing from the ATO?
     
    Last edited: 26th Jul, 2016
  19. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The tap replacement may well be a repair if its is worn and old etc. I recently had this issue when I couldn't replace spindles etc. (Dorf have a non std size and cost a motza)
    Cheaper to replace with substantially like taps. (To match shower) However where multiple items are replaced it may be a replacement especially if its part of a new basin etc.
     
  20. Depreciator

    Depreciator Moderator Staff Member

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    The logic with fans is that have a motor and moving parts. The Effective Life for them is 5 years, but if they cost under $300 they can be written-off.