Tax timing - PPOR to IP

Discussion in 'Accounting & Tax' started by S0805, 10th Feb, 2019.

Join Australia's most dynamic and respected property investment community
Tags:
  1. S0805

    S0805 Well-Known Member

    Joined:
    3rd Jul, 2015
    Posts:
    476
    Location:
    VIC
    Hi guys,

    We are changing our PPOR and converting existing PPOR to be rental. Plan is to change a carpet, paint throughout and fix the deck, all of this work will occur once we officially move out. We are defining official move out as (update electoral roll, removalist invoice)....Trying to figure out few tax related timing around it.....

    Depreciation:
    with the new rules, for all the above (carpet,deck fixing,painting) can claim that as depreciation given we were not living there.

    Loan interest deduction:
    When can we start claiming interest on old ppor loan. Is it when we move out of the house OR when we will sign the Agent authority agreement (hiring PM) OR once renovation is complete. there was a line out though that once we sign agent authority for PM we can claim the interest given the intention for it to be rental is clear.

    cheers
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Has to be new for claiming depreciation.

    Interest from when available to rent
     
  3. S0805

    S0805 Well-Known Member

    Joined:
    3rd Jul, 2015
    Posts:
    476
    Location:
    VIC
    Not sure what you mean by new for paint and deck fixing, new carpet will be installed. Important thing is property will not be occupied.

    "Available for Rent" what's the legal definition for this..... Once we sign PM authority it is available for rent, PM can show property to tenants while reno happening with expected moving date OR only when property is listed on relevant portal it is considered available for rent.....
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Building works can be claimed if not new, but fixtures and fittings need to be new to be claimed. So wait till you leave to put in new carpet.

    Once you are looking for tenants - but not while living there.

    You also have the steele case applying until 1 July I think so could claim interest, potentially, even if not looking for tenants if you intention is to reno to lease the property out.
     
  5. Paul@PAS

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

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    The painting may (at best) be eligible for Div 43 building capital works too. A very slow and long deduction at 2.5% pa.

    The date of vacancy likely does establish the date the property is intended to be available to rent but getting an agent also firmly supports this position.
     
  6. property_geek

    property_geek Well-Known Member

    Joined:
    31st Jul, 2015
    Posts:
    239
    Location:
    Australia
    @Terry_w Does it mean OP can only claim “capital works” component from the depreciation report while the “plant and equipment” part can not be claimed unless a “plant and equipment “ is installed after the property is vacated?
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Yep
     
  8. Paul@PAS

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

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Yes. However, the P&E must be "new". It could be installed before vacating and still be unused but some items would be impossible to prove or be highly improbable eg flooring. However a dishwasher in theory can be installed and unused prior to vacating or even installed on the day of vacating so its doesnt mean its excluded. How you prove that if challenged may be difficult as the receipt may predate the vacancy yet the item is installed by the owner after vacating etc. Many people accumulate goods to renovate at a later date. Perhaps images would assist prove the taxpayer claims ?

    Second-hand depreciating assets are those that are not new or acquired by the owner and have been used. They cannot be depreciated. I am waiting for a ruling on whether a refurbished item acquired from seconds world (or any other seller) could be classified as new. Many manufacturers rebox or sell surplus stock as refurbished through grey market channels (eg grays online, ebay store, second world etc). Generally speaking they may have been used by the former owner until a defect was noted and then returned for repair and resale. In other cases it may be unused or reboxed

    Dont forget a depreciation schedule for these items is still important. The depreciation that would have been available but for the rule change may still be used to calculate a CGT loss at a point in time. Generally that will be the earlier of 1. The asset becoming obsolete or 2. The property being sold. Most QS reports now adjust and report this value along with the Div 43. So QS reports still can have as much value as previously and shouldnt be ignored
     
    property_geek likes this.
  9. craigc

    craigc Well-Known Member

    Joined:
    25th Jun, 2016
    Posts:
    1,575
    Location:
    Melbourne
    Don’t forget to get a valuation as well when PPOR is converted to IP for cost base purposes.
     
  10. Paul@PAS

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

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    If that applies
     
    craigc likes this.

Buy Property Interstate WITHOUT Dropping $15k On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia