Short Stay Rents - Write offs

Discussion in 'Accounting & Tax' started by Paul@PAS, 29th May, 2019.

Join Australia's most dynamic and respected property investment community
  1. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    There is a technical issue many property owners can encounter which balloon into a tax problem. They make their IP into a short stay rental. They incur a significant range of costs which relate to things like furnishings, linen, new items in the property etc and furniture etc.

    Is this deductible ?? Probably NOT. The explanation is complex but read on.

    Why is it likely not deductible ?

    Well first these costs need to consider the capital allowances (depreciation) rules. These look at plant & equipment and specific expenditure that falls under Div 40. So furniture, ovens, carpets etc fall under this as they are specific asset listed under the Commissioner rulings. So they must be depreciated to the effective life tables in the rulings.

    But what about the rest ?? Ah everyone says if it costs under $300 its a write off ? Well everyone may be wrong. See these expenses are capital expenditure BUT arent Div 40. So the write-off threshold of $300 per item is NOT valid.

    So what does that mean ?

    Taxpayers may need to recognise the capital expense and self determine an effective life. For a short stay rent that my be 2-3 years ???? Asset pooling is one solution. And it may apply to every item even if it cost $10. And they may all be grouped and only be eligible from the date the property commences its short-stay

    But claiming a deduction is at risk the ATO denies the deduction. In full.

    And does the $300 "no receipt" substantiation rule apply? NO WAY. This rule basically requires that a taxpayer with LESS THAN $300 of total deductions may avoid the requirement to provide receipts when audited. But go over this and EVERY SINGLE COST requires a receipt. For property owners this means ALL taxpayer deductions must be supported and proven. Not just those over $300.

    All issues that may need tax advice
     
    Marg4000 likes this.
  2. Mike A

    Mike A Well-Known Member

    Joined:
    24th Jun, 2015
    Posts:
    2,656
    Location:
    UNIVERSE
    Linen in a short stay rental would have less than 12 months effective life anyway
     
  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Yes esp when its $30 at Kmart. And a cheap Ikea couch purchased without thought. But when bundled with a rug, kitchen appliances etc all of a sudden there is a blended mess.