Tax Tip 392: Why you Should Record all Expenses for Every Property

You might think that there is no point in keeping records relating to expenses on a property that is a main residence, but it could come in handy later

If the property was formerly an investment property, then you will definitely need to keep records as these expenses can be used to reduce CGT.

But there might also be a chance that the property you are living in is one in which you don’t want to or cannot claim the main residence exemption on and this is when the cost base expenses will be able to be used to reduce future CGT.


Example

Bart goes and gets married. He knows his now wife had a property which she was living in but that is rented out now and they have just bought a property together and are living in that.

10 years go by, and the wife sells her former main residence and her accountant suggests she claim the 6 year rule to help reduce CGT. She does that and tells Bart and he thinks that is one smart accountant.

2 years later they sell the current main residence only to find out it isn’t exempt from CGT as it wasn’t their main residence for CGT purposes as they claimed the other one for an overlapping period. But don’t worry he says, you can use 12 years of 3rd element cost base expenses to reduce the CGT, things like interest on the loan, rates, building insurance etc.

Bart says why didn’t you tell us this 12 years ago as I have kept no records thinking this was my main residence and would be fully exempt!



Thanks to @Paul@PFI for suggesting this tip

 

Name an accounting firm that reccommends and PROVIDES a record keeping tool for each property ?

How can anyone be a property savvy tax adviser and not give that advice and resource ? Its one of my "tests" for property tax adviser skills.

Here is a copy.

There are a few different ways these costs can become a trigger. Basically anything that requires a PRO-RATA CGT calc will mean past information is at risk of loss and should be recorded for that future event when a pro-rata starts to arise. And supporting data retained eg old loans, old receipts etc. You know that new kitchen or pool - Where is the invoice ? Ionically its the larger costs nobody can find. Closed loans, no paperwork...because it was their home !!

• Spouse // parners etc with each having different property that was a main residence
• Working from home as a sole traders / partner in partnership
• Home based business use of the home
• Non-residency issues ?
• Having two properties that are each exempt at different times
• Choices for exemption or not
• Renting a room or more
• Adding a granny flat

These ownership costs add to he costbase BEFORE the % apportioning occurs. It is possible to reduce the profit to $0 so not apportioning occurs. Why ? Well x% of zero is always zero.
These costs cannot produce a tax loss either. And selling costs will be an addition to the costbase.

There is also another way - Renting all the home for the first time. s118.192. However all prior costs to this data are ignored IF the prior use is 100% private. Only future costs which are not deductible will count

 

Property Tax Solutions has one.

 

I would have assumed Mike would adopt best practice.

 

Yep very true, no use telling someone what they could have done or should have done - doesn't help anyone

At the same time, people should always do their own thorough research or consider consulting a competent tax accountant at least once if something financially significant changes e.g. move houses, start business, etc. This way they can affectively tax plan and get real-time advice rather than years later when it's too late

Example: person rented out a room in their home for a year in 2010 then stopped. They never used a tax agent to lodge their tax returns (as their affairs were simple) until 2020 when they decided to sell their home. They assumed it was exempt from CGT as they had always lived in it but they wanted peace of mind from an expert. They nearly forgot about the room rented back in 2010 until the new accountant prompted them, who then tells them they have a CGT problem. Just like Bart: if no records are kept...too bad so sad

 

thanks. i think shukri has one as well from memory but havent seen it.