Tax deductibility questions

Discussion in 'Accounting & Tax' started by G.., 20th Sep, 2018.

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  1. G..

    G.. Well-Known Member

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    I self manage a block of units, as well as doing the majority of the maintenance tasks. I have read the ATO's Rental Properties Guide and am able to figure most things out, but there are a couple of border cases that I'm unsure about. Note that all of these are actual situations and the items are under $300 (except the last one).

    1) If I purchase a specialised tool to repair something and when I use that tool I find that the item is beyond repair I then replace the item. The tool is now "used" as a result, but didn't end up actually fixing any issues and hasn't been used for anything else. Is this tool still deductible?
    2) If I need to replace an item (in this case, a bathroom exhaust fan) but find that the store is out of single packs and I am forced to buy a two-pack (or drive to another store, which is inconvenient - besides, the second one will eventually get used). I installed one and kept the second one, unused, in my "rental properties parts" area and it remains there as of EoFY. Is the total price of the two-pack still deductible?
    3) If I am called to replace an item (in this case, tap handles), but there are two possibilities as to which type it is. Both types exist in the property and will eventually be needed, so I buy one of each. When I get there, I install the relevant one and the second one is kept in my "rental properties parts" area for next time and remains there as of EoFY. Are both tax deductible?
    4) If I need to replace a small part (in this case, the latch part of a door lock), but the shops are out of it (and no other brands are suitable) so I buy a complete set (including door knobs and mounting kit) and only use the small part, keeping the remainder of the set unused. Is the full cost of the set tax deductible?
    5) If I forsee that at least one HWS will fail within the next couple of years and pre-buy some valves and fittings from a lower cost online supplier (can't do this after failure, as it is an urgent repair so I can't wait for delivery) and keep them until the unit fails and needs replacing (I have discussed this with my plumber and he is happy to use my parts). The parts will be under $300, but the total job will be well over $300. Are these tax deductible in the FY that I purchased them? Or are they included into the capital cost of the HWS and start being depreciated on the actual replacement date?
     
  2. Paul@PAS

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

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    1. Yes
    2. What does it cost ? Apportion cost for the repair when it is repaired. Not held for future use.
    3. No. The other cost is not a repair. Its a purchase without deductible purpose
    4. Yes.
    5. Doesnt seem like a repair if you hold the parts in the event it fails and never use them. If used then the parts are a cost of a repair even if it exceeds $300. Its a case of EITHER repair (at any cost) or a new asset $300+.

    Buying reserves of parts doesnt have a deductible purpose. A repair or "maintaining a item" is a matter of fact. Buying parts for future use isnt a deductible purpose. However its also difficult for the ATO to bother arguing you never used them at that time either so dont over complicate matters
     
  3. G..

    G.. Well-Known Member

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    Paul, Thanks for your response.
    I understand that purchasing additional parts is not a repair, but do they need to be repairs to be tax deductible? I thought that the basic premise was that an "expense incurred in gaining or producing your assessable income" was deductible and I would consider a small stock of inexpensive spare parts to be a perfectly reasonable expense for the owner of a rental property. In the long run it will save money (discounts compared to buying singly) as well as other savings (travel to shops, plus my time) which are not deductible, but which have value from my point of view.

    I am also curious why you gave different answers for the two scenarios where I was forced to purchase about twice as much as I needed to use (2 and 4).

    I have been doing some research this arvo and have found a tax ruling about the purchasing of spare parts. This seems to be aimed at businesses, but does this apply to individuals as well?
    Legal Database

    Good point, the value of items 1 through 4 would total about $100 and the ATO would likely be happy with me just handing over the receipts. Unfortunately my record keeping is detailed enough to show exactly what was bought and exactly what was used, so I'll probably have to keep that to myself if I ever get audited.

    With item 5 (parts for the HWS) I probably shouldn't have used the word repair. I was thinking that a new HWS (along with any associated components and labour costs) would be considered a capital item. So this would mean that I must not deduct the cost of the parts until the unit is replaced, at which point I start depreciating them as part of the capital cost?
     
  4. Paul@PAS

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

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    Purchasing those parts themselves isnt a deductible purpose but who is going to check a minor cost if you have a receipt.

    The HWS parts etc are a repair cost. Deductible. It is NOT capital expenditure. A example is a split AC. Compressor fails. Replace the compressor and its a deductible cost. Replacement of the HWS is a capital cost.