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House being renovated, not available for rent this FY

Discussion in 'Accounting & Tax' started by katherine_j, 16th Jun, 2016.

  1. katherine_j

    katherine_j Member

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    Hi everyone

    This is a great forum, thanks for all of your knowledge. I've been reading a few threads and hope someone may be able to provide me with some clarity.

    We bought an investment property in December 2015 with the intention of a full renovation with availability for rent by end of May 16. The renovations have taken longer than expected and it is now not expected to be available for rent until Oct-Nov 16.

    I read on the ATO's website that interest on a property which has not yet been rented, but which was acquired for rental purposes and is being renovated, are deductible if the property is rented or available to rent that year.

    However, this seems to be very 'line in the sand' rather than principles based as the facts haven't changed, the interest is still being incurred for expected assessable income, that income is just delayed. And had we purchased in July, we would have had it available in the same year, if we apply the 10-11 mth timeframe.

    I've read Steele's case and TR 2004/4 and the principals seem to apply here, but that makes me question why the ATO site is so specific about rental properties - is there another reference I'm not aware of? Most questions I read around this issue relate to vacant land/new properties rather than renovation so perhaps I am off track. Appreciate any advice
     
  2. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    @katherine_j do you have a link to this ATO comment?
     
  3. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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  4. katherine_j

    katherine_j Member

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  5. katherine_j

    katherine_j Member

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    Thanks for the link, handy. Do you mind elaborating re the rental schedule, where else could it be claimed?
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Other Deductions D15...The spot where the audit risks lurk. Problem with this label is no details go to ATO so it can attract questions.

    That ruling concerns me (as its a BPR and not public) and I need to ask if Property A could well utilise a scrapping deduction ?? (But not B)

    I love the "not so long" expression. I guess its shorter than "love you long time" and more than tomorrow.
     
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  7. katherine_j

    katherine_j Member

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    Yes exactly. It all seems quite unclear. This doc on page 7, bottom first column, suggests it is claimable without providing a timeframe https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/Rental-properties-2015.pdf
     
  8. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    yes not soo long....well how long is a piece of string
     
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  9. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    sometimes it seems that people like Paul, terry and I are being a**holes because we dont answer the question with a straight answer. The reason. It is vague many times and at the end of the day can end up being sued from providing advice even on a public forum. So can only ever give general opinions with maybes, could be, likely scatered everywhere. Best is to get a professional opinion and pay for it and the accountant is then covered.
     
  10. katherine_j

    katherine_j Member

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    It hadn't crossed my mind to categorise you like that at this stage :)

    Here's a question - I like to do my own tax, can I see an accountant about this single issue to get an opinion, without having my tax done through them?
     
  11. Perthguy

    Perthguy Well-Known Member

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    I don't think so. Well, not from my point of view anyway.

    I have done this in the past. One accountant charged a fee for service for the consulation and the advice he gave was wildly incorrect from my understanding of the issues (Uni accounting, Master Tax Guide, ATO web site etc). I saw another accountant who was recommended by someone I trust, didn't charge, top notch advice... and they say you get what you pay for ;)

    IMO, it's good to get professional advice if you can find a good professional.
     
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  12. legallyblonde

    legallyblonde Well-Known Member

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    Good thread. Hopefully you can get some clear answers.

    I admit, I was under the impression that it needed to be available for rent to claim the interest.. Although I knew that new builds can be covered if they were intending to be rented.

    I think the ATO would look suspiciously upon your claim of almost a years interest and other holding costs when no income has been generated..
     
  13. Azazel

    Azazel Well-Known Member

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    You probably could.
    But it will probably cost the same as just getting them to do your tax.
     
  14. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Spot on... Sometimes I am also an ahole.

    I note that this is a private ruling and is NOT a public ruling. Other taxpayers cannot rely on this view as "law". The ATO hasnt committed this view to a public ruling and if pushed could issue one but could also adopt a contrary view limited to some circumstances etc. Or backflip. Its happened before. I reckon if asked they would not issue a public ruling as there appears no case law that requires the existing view to be expanded beyond Steele's limited judgement. Just my thoughts.

    The taxpayer will run risks that what appears a valid claim is denied and penalties and interest applied. Often occurs when a taxpayer attempts to defend their position and mis-describes matters or tries to draw a decision to fit their position. Mis-interpretation of this private ruling could easily occur.

    I do have a concern that this arrangement does not relate to an acquisition intended to become a IP on / after settlement. It clearly describes A + B being existing rental properties of the vendor when acquired by contract.
     
  15. Ed Barton

    Ed Barton Well-Known Member

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    It's hard to know when you've found a good professional though.
     
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  16. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Of course. Clients can choose the services they need. However in that instance advice may be in writing and would clearly disclaim any issues involved in your self lodging. So it may cost more and limit the scope of liability if we cant control if you disregard or make errors.
     
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  17. Nick Valsamis

    Nick Valsamis Well-Known Member

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    Speaking broadly for all professions, I've found that if you ask multiple people the same question, you can then get an idea of who is good based on their answers.
     
  18. Ed Barton

    Ed Barton Well-Known Member

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    True, but if you are asking non-professional people then the answer is near useless unless it's very simple. If you are asking professionals then you're paying multiple times for the advice - something most are reluctant to shell out for.

    IMO it's easier to determine a good professional if you have an ongoing relationship with them. If you only see them once it's a lot harder.

    I look for professionals who:
    • Teach but are not just teachers.
    • Admit and refer when they don't know, are unsure or think someone else could do the job better.
    • Are expensive but try to minimise cost.
     
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  19. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Whats the question?

    Can you claim interest on a property that is being renovated, but not yet available to rent?

    The answer would be clearing 'yes'.

    But is it possible in your situation ? - it would depend on the particiular circumstances.
     
    Last edited: 17th Jun, 2016
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  20. Marg4000

    Marg4000 Well-Known Member

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    How come "renovations" are taking so long? Twelve months seems excessive by any standard.
    Marg
     
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