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Renovate before or after settlement? Tax Deduction question

Discussion in 'Accounting & Tax' started by Paco98, 9th Jun, 2016.

  1. Paco98

    Paco98 Member

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    Hi all,

    I am a newbie in IP renovation.
    I am buying an IP and plan to do renovation i.e. repainting the whole house, replace whole carpet and vinyl, replace the old stove. The building was built in late 80s or early 90s. I'd like to do the reno before settlement so it available for rent straight after but not sure if it is the best way or should I wait to do reno after settlement and let go 2-3 weeks rent income.

    Options are:
    1. Get access to do the renovation and advertise for rent before settlement then get Depreciation Schedule after settlement or
    2. Advertise for rent and get depreciation schedule after settlement, renovate then update depreciation schedule
    3. Any other option ??

    I plan to do the repainting myself, can I claim paint cost as expense or is it a capital works? And what about my labour?

    Thanks
     
  2. Otie

    Otie Well-Known Member

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    I'm interested to know too. I didn't think it would be possible to get access prior to settlement. I don't think you can-
     
  3. Joynz

    Joynz Well-Known Member

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    I was advised that you can only deduct when the property is available for rent. Before settlement it is not available for rent, so not deductible.

    Also, as a seller, I wouldn't let you into the property to renovate before settlement in case some damage is caused.

    I don't think you can claim your own labor - you'd have to invoice and pay yourself!
     
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  4. House

    House Well-Known Member Premium Member

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    You could do it pre-settlement but there's the risk that the settlement may not actually eventuate. The reno could go wrong and the valuation come in below,

    If you do do it before I think you have to get a Licence to Occupy (which states what you can and can't do) and take out you own building insurance

    Don't forget the scrapping schedule pre-reno to maximize deductions.

    Painting can be claimed as it's considered 'maintenance'.
     
  5. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    The painting will be an 'initial repair'. It is a capital cost and not immediately deductible.

    You cannot get a deduction for your own labour.
     
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  6. Marg4000

    Marg4000 Well-Known Member

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    Initial works are always a capital cost.
    As said, you cannot claim cost of your own labour.
    Marg
     
  7. D.T.

    D.T. Adelaide Property Manager Business Member

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    Cant do that in this case as house has not been a rental yet
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    This first bit is not true. If your intention is to hold and rent the certain costs can be deductible before the income is generated - such as interest on a loan for money borrowed to fund a renovation.

    No you cannot contract with yourself so you cannot claim your own labour - but if you could you would have to declare the income you charged yourself anyway which could cancel out any costs!!
     
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  9. Otie

    Otie Well-Known Member

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    I have wondered this- are you best to contract to yourself, and pay yourself, (and then obviously pay tax on that income) but then claim the expense (example we have a bathroom reno business, so would we renovate the bathroom without contracting to ourselves and not claim the costs and work for free without income during that time, or what? I know its our money anyway and sort of cancels out but want to know if there is more to it that I am missing? Would it be better for serviceability income wise?
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Legally impossible to contract to yourself
     
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  11. Paco98

    Paco98 Member

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    Thank you all for your respond. I'll wait after settlement to do the reno.

    The renovation will take a week then we'll advertise it on second week after settlement. Can I claim the interest of IP loan for that 1 week reno period?
     
  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Scrapping is NOT available in this situation
     
  13. Otie

    Otie Well-Known Member

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    thanks Terry, good to know
     
  14. Taku Ekanayake

    Taku Ekanayake Well-Known Member

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    Hi @Terry_w,

    I did a reno before the property settled in my name but after it went unconditional - i did this by having an early access special condition.

    Am I able to get tax deductions for all my reno costs?
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Reno costs would generally be capital expenses. What are we talking about?
     
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  16. Taku Ekanayake

    Taku Ekanayake Well-Known Member

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    @Terry_w, yep it's a capital expense which was done before it settled into my name.
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    There has to be 2 to tango. You can't tango with yourself.
     
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  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    In that case you can claim a % each year depending on what it was exactly.
     
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