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Does an invoice need to be paid before 30th June?

Discussion in 'Accounting & Tax' started by Mumbai, 29th Jun, 2016.

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  1. Mumbai

    Mumbai Well-Known Member

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    I am getting some work done at one of my IPs. This work will continue well beyond 30th June.
    The tradie is happy to provide invoice dated before 30th for the work.
    My question is, do I need to pay that invoice in this FY as well?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Pay it when you want to claim it.
     
  3. Mumbai

    Mumbai Well-Known Member

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    Well, my bad. That was my question. I want to claim it in the 2015-2016 tax returns. So, I guess I should pay it before 1 July 2016?
     
  4. Xenia

    Xenia Adelaide Property Manager Business Member

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    Pay it to the agents trust account before July 1, it will then be paid from your end for purposes of claiming.
    agent can keep it in trust and pay the invoice once work is completed and checked.
     
  5. pinkboy

    pinkboy Well-Known Member Premium Member

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    Yes, but are you running the risk of paying the trade too early which will cause problems for you down the track.

    I guess what is the deduction really worth?

    pinkboy
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    In this case when will the expense be incurred? If it is held on trust it hasn't been paid until the agent pays it - I think.
     
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  7. Mumbai

    Mumbai Well-Known Member

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    Thanks. This tradesman (touchwood!) has the best work ethics I have ever seen. It is still a risk, but if I have to take my chances, this could be it.
    The cost of the repairs is 4.5k.
    My wife (one of the joint owner) has only worked for 6 months this FY. This (along with some other expenses) could take her to the lowest tax bracket.

    P.S: I will chat with my tax agent before taking these steps.
     
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  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    No. Not unless the charge appears on the agent stmt. The agent account is the client account really. ie income received and expenses paid.
     
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  9. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    As is summarised in taxation ruling TR 97/7: "a taxpayer need not actually have paid any money to have incurred an outgoing provided the taxpayer is definitively committed in the year of income."

    So if the expense is not paid before 30 June, you can only deduct what you are 'definitively committed' to. I think you would be 'definitively committed' to the portion of work which has been completed by 30 June so you might be able to deduct a portion of the invoice in this income year (e.g. 50% of the work completed by 30 June, deduction for 50%). Get some tax advice if you want to do this.

    If you pay the invoice before 30 June (and not just to your agent's trust account as @Terry_w noted) you should be able to deduct the full amount in this income year as a prepayment.
     
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  10. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    It may not be deductible if its capital expenditure too.
     
  11. Mumbai

    Mumbai Well-Known Member

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    I read the ATO advice on repairs and maintenance part. It is a gray area.
    Its says, "When we say 'repairs', we mean work to make good or remedy defects in, damage to or deterioration of the property."
    I am getting the plumbing damage caused by the tree roots fixed. This seems like repair to me and not just a regular plumbing maintenance.
     
  12. Propagate

    Propagate Well-Known Member

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    Depends when the damage was done. We had a $6k bill for replacing a sewer line damaged by trees. We hadn't had the property a year when it backed up and we found the issue. The problem is, there's no way a clay sewer line disintegrates in 6-12 months so it must have been breaking down for years, which means you can't realistically claim it as a repair. Seek a ruling from the ATO if you've not had the property very long. We didn't claim ours, I've just noted it down on my records to offset against future capital gain if we ever sell.
     
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  13. Mumbai

    Mumbai Well-Known Member

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    I have the property since 3 years now. Done the usual jet-blasting four times so far, twice last month itself. Would this could qualify as a repair or still have to get private ruling?
     
  14. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Propagate addresses a valid point. If its an initial repair then non-deductible. An initial repair need not be evident or suspected. I would think 3 years is sufficient.

    If its old clay pipes and plumber lays PVC its non-deductible. And so on. Usually a tree root blockage can be rectified by replacing a meter or two or a reasonable length. Replacing the full pipe length may be non-deductible. Its a replacement then, not a repair.

    These sorts of "repairs" are often best supported by photo's if its an evident repair. If ATO think the sewer repairs smells (LOL) they can just deny it and allow you to object / appeal.
     
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  15. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Those specific costs may well be deductible even if it was unsuccessful. Repair costs dont have to be successful.
     
  16. Propagate

    Propagate Well-Known Member

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    I didn't get a ruling as for one I couldn't be bothered quite frankly, and I also didn't want to take the risk in claiming then having to argue it if we get audited so I just erred on the side of caution and chalked it down to an "initial repair" and onto the cost base.

    If we'd had the property 2 or 3 years already then I think I would have taken further advice or sought a ruling, but in our case it's obvious the sewer was already damage prior to purchase so fair enough not to immediately claim.
     
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  17. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    Did you consider if the expenditure was depreciable (under Div 40 or Div 43)?
     
  18. Propagate

    Propagate Well-Known Member

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    No, I just chalked it down to the cost base. There may have been other things I could have looked at had I taken proper advice, but for the sake of what it would be worth per year to depreciate I figured I'd rather see it as a chunk reducing the capital gain at some point.
     
  19. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    The issue with that is if it is a Div 40 cost it doesn't get added to the cost base.

    If it is a Div 43 cost, while it does get added to the cost base, your cost base gets reduced by the capital allowance deductions that you could have claimed. The ATO's administrative concession (PS LA 2006/1) which provides you don't have to reduce your cost base where you haven't claimed the capital allowance deductions because you don't have "sufficient information" might not apply.

    Also, assuming you're eligible for the CGT discount, the value of your expenditure will only be recognised at 50% if it is included in the cost base.

    There's no general election that lets you choose whether you will claim a deduction in a particular year. Claim the deduction in the year you are entitled (no earlier or later) or you may miss out for good. In saying that, I appreciate that sometimes the dollar value of the expenditure might mean it is not worthwhile obtaining advice and you will just take your own view. Just keep the above in mind when you take that view.
     
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  20. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Yes it does in a convoluted way, provided it is not scrapped or obsolete. But it is a asset that requires a decreasing adjustment on disposal to the proceeds for the CGT asset. ie Sell property $1m then the CGT proceeds may be less due to the disposal of the depreciable item/s. The changes to Div 43 requiring a costbase adjustment were intended to give identical tax outcomes to Div 40. Exception : Asset acquired prior to 21 August 1991.

    That said - I'm with you on the issue of claiming any deduction as it arises. Laws can change and a dollar today is worth a dollar. Next year they could take a stream of future dollars away.