Replace or repair - EOFY payments

Hi guys, just a quick question: got a call from a PM, dishwasher has gone. Repair will be $110 call out fee + so probably <>$300. New dishwasher $578 + $88 delivery and install. As far as I know, repair would be deductible straight away, replacement will be over so many years. Going for the replacement is the best option yes?

PM also mentioned they might be able to pay this months rent payment in before the EOFY but that will make 13 payments in this financial year, is it better to delay this payment until next financial year?

 

You have a correct grasp on the tax issues. If the repair is likely to prolong the life then it would definitely be more tax effective in the short-term to repair and just claim the $300 or whatever it costs. But if it fails again soon after then its not a good sense of value. A new DW may be a better choice in terms of value. Just depends what the repair is. I just went through this exercise in an IP and decided to replace it since the 3 mth warranty wasn't worth effort and it was 10+ years old. Tenant LOVES the new model as it is almost silent and uses far less water. I like it since I paid just $129 for a total of 5 years replacement warranty and they threw in deliver, install and take-away old one. I will write this one off over 5+ years. (10yr effective life = 20% DVM)

If the agent has received the rent its income. They are your "agent". It doesn't matter if they hold the rent for costs or pay it to you. If they receive it, it is income. They are holding the rent on trust for you.

 

Awesome, thanks for the detailed reply Paul!

1st year with these guys but they should all provide a similar 'Profit and loss statement' which has the correct payment period info?

One more question, is it better to have them take the payment for the DW out of the rent, or pay the invoice separately?

 

Hum my accountant said the opposite. He said the date it actually hits your bank account is the day you use for tax purposes.

 

One of us is wrong perhaps. . Lets take that concept a tad further. You ask your agent to hold all rents for the whole year and NEVER pay it to you....No income ?? Wow he just created tax scheme if its that simple. Its never income until you receive it ?

He/she probably doesn't understand "constructive receipt". A trust concept usually. What is important is a right to receive, not actual receipt. The REA is your agent and operating a trust bank account in most cases. So its your $ on trust. You can demand it or ask for it to be held (that's what the agent did isn't it ?).

Many taxpayers (and some accountants and tax agents) make similar mistakes and consider that the "CASH" basis means that the $ must be in or out of the bank account. Examples where this is wrong:
- Land tax payments
- General Interest charge incurred but not paid in same tax year
- Statutory obligations paid after year end (eg employee PAYG for the June 2015 qtr)
- Credit card sales. These settlement may occur on 1st July. Still a 30 June sale.
etc....

And you rely on them as a property tax expert ?

 

It seems like you're unaware of/forgetting about scrapping. With a replacement dishwasher, as long as it's in an ongoing rental situation, you can depreciate the new dishwasher and instantly write off any unclaimed depreciation on the old one. It's sort of like having your cake and eating it too in this situation.

 

Thanks BMT, I didn't forget, I've been taking note of all of you guys posting in the other forums
I'll be scrapping some external stairs and a large double shed for another property too. Very good to know.

 

Just watch that eligibility to scrap is available. You want to have it rented before and after the work.

 

Thanks again Paul. Removed the stairs just after tenant moved out, rented straight after. Removed the big shed while tenant was there. Should be alright?

 

It's also going to depend on the age of the shed and the stairs. They will need to have been post September 87.

 

The shed was noted on the depreciation schedule last year, and I asked them for an update on how much we could claim for scrapping the stairs. They asked for before and after pics. Does that sound right or does it need to be a new schedule?

 

No, that will be fine for the stairs.
If the shed is on your Dep Schedule, it would be a small one and treated as an Asset. It will have a WDV.
What we do when clients dispose of eligible Cap Works and Assets is put a residual value on whatever has been tossed out and write a letter. It's not a big deal and we don't charge clients for that sort of thing.

 

If I was the tax agent I would scrap it if you told me it was obsolete / destroyed / binned etc. If its on the old schedule you don't "need" a new schedule or a letter. What helps is its removal from the former schedule. That where BMT's excel file helps. I can just edit it. Not all QS offer a excel version. Some QS are happy to edit the schedule too.

 

Does anyone know if this makes any difference?

 

Sometimes agencies can be SLOW with accounting and it may take 1-2 months. If you pay its not a concern.