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Paying for renovations

Discussion in 'Property Finance' started by menty, 19th Apr, 2016.

  1. menty

    menty Well-Known Member

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    Are you able to use money in an equity account to pay for a renovation at a newly bought investment property?

    What if the renovation was paid in cash? Im assuming this is a no as there would be no receipts and hence not tax deductible?
     
  2. datto

    datto Well-Known Member

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    Yeah, you need documentary evidence to prove how much you spent on the reno. Unfortunately the ATO doesn't trust us,
     
  3. dabbler

    dabbler Well-Known Member

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    I am not sure what you mean by equity account, but in regard to cash........of course you can pay in cash, it is legal tender, so why not ? The person you pay still gives you a tax invoice.

    If you mean someone is trying to get cash off you & no tax invoice, well, no, not good on many levels & do you trust them to return is there is a problem.
     
  4. albanga

    albanga Well-Known Member

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    There are two tax elements here. The first is claiming the depreciation, how that will look I am unsure but it wouldn't matter if it were paid in loan money or cash. The depreciation would still apply if valid.

    The second though and I am guessing what you are more talking about is claiming the interest on paying for the Reno if a loan is used. In that case then obviously cash cannot be claimed so from my limited understanding you would be better if borrowing from a seperate split (ensuring not mixed with anything). Then place the cash in your offset against your PPOR.
     
  5. Andrew H

    Andrew H Well-Known Member

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    Another thing to think about, Personally i end up with a lot of cheap/free materials from say gumtree, ebay, friends, garage sales etc. depending on extent of the reno it may be worth getting a depreciation assesment done straight after the reno and the surveyor add their value to items which will be higher than what you paid for them.

    Another reason i do this is when i paint tiles the surveyor often thinks they are brand new tiles and a full bathroom/kitchen/floor reno has been done (so i tell them too)! much more than the paint i paid/didnt pay for!
     
    Last edited: 20th Apr, 2016
  6. menty

    menty Well-Known Member

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    Doesn't the QS need receipts for the renovation item?
    What's to stop everyone buying a 200$ Used oven, losing the receipt , and then getting a QS valuing the oven at $500?

    You may as well pay cash for your whole renovation , not deduct any interest , and claim depriciation from a QSR?
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    A QS report is prepared based on your actual cost not what its worth or could have cost. Labour is free and if the material are free (and used) then there may be little or no cost to be concerned with. If something is free how can you claim a deduction ?

    Receipts for capital expenditure can be requested. I have clients audited where the ATO wanted evidence the capital costs where actually incurred especially on a new / modified QS report. Generally substantiation for all tax costs is a two part process. First a receipt and second evidence how it was paid eg EFT, cash withdrawal, loan etc. The ATO love catching taxpayers who pay cash.
     
  8. Andrew H

    Andrew H Well-Known Member

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    I tell them the renovation was done by the previous owners prior to them selling, within the last year also so max is claimed in depreciation. Like i said depends on the extent of the renovation and i make a judgement on how much cheap and or free materials i used. I give them receipts for big cost items i used if looks seperate to what the "previous" owners did. I wont comment much further, you'll get the idea.@menty
     
    Last edited: 21st Apr, 2016