Depreciation deductions - settlement or contract date

Discussion in 'Accounting & Tax' started by Sweetbob, 16th May, 2020.

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  1. Sweetbob

    Sweetbob Member

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    Hi all,

    I will be buying a property from a family member. The property requires significant repairs which I'd like to do as soon as possible, rather than wait for settlement to occur. Repairs include roof, floors and carpets, new kitchen, bathroom, re-plastering, re wiring house. Likely cost $100,000.

    When is the date that I can begin to claim capital works or depreciation deductions based on the work above Contract Date or Settlement date?

    I know that for the purposes of CGT, the relevant date is the contract date but perhaps this is different.

    If it is indeed generally settlement date, are there potentially work arounds that can be drafted in the contract for sale that would make me the effective economic owner?

    Thanks,

    Bob
     
  2. Terry_w

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

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    I don't know the answer off the top of my head, but I would wait until settlement for Div40 costs otherwise there is a risk of them being 'second hand' and no depreciation allows. Capital works costs won't matter too much as the amount will be so small.
     
  3. Sweetbob

    Sweetbob Member

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    Thanks Terry.

    I was just reading the following link Rental expenses you claim over several years

    I believe I might qualify for the work being substantial renovations and therefore deductible.

    The repairs will involve restumping, subfloor and refloor in every room, as well as a $8,000 roof restoration in addition to those items mentioned above. No one is currently living at the property and we plan to acquire within six months.


    If you acquire a newly built residential property from a developer, or buy a residential property that has been substantially renovated, you can claim a deduction for a decline in value of a depreciating asset in the property (or its common area) if:

    • no one was previously entitled to a deduction for the asset, and:
    • either
      • no one resided in the property before you acquired it, or
      • the asset was installed for use or used at this property and you acquired the property within six months of it being built or substantially renovated.
     
  4. Terry_w

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

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    Yes if the assets are new when rented out you should be able to claim depreciation on fixtures and fittings. It doesn't matter for capital works whether new or not.
     
  5. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    1.Initial repairs (no deduction)
    2. Renovation and new works as improvements (no deduction)
    Div 40 and Div 43 capital expenditure for sure. Maintain a list of these costs - Those that are Div 40 (eg oven, carpet etc) would be depreciable over a shorter term but the building works incl roof , stumping etc would be 2.5% pa....Start date will be when the property is first available for rent eg tenancy agreement and vacant and available.