Tenant pays for new garage door

Looking for an opinion please:
Scenario, a tenant drives into the garage door of the property that they lease. As a result, the garage door needs to be replaced. The tenant pays to have the garage door replaced for $1500.
From the landlord's perspective, are they able to claim depreciation ($1,500 x 2.5% per year) on the new garage door from the date it was installed?

 

Yes, I would think so, but the $1500 is income!

 

What if the tenant pays for the door directly?

 

That would make for a better outcome I think. They are just replacing something damaged.

 

why would the tenant paying for the door not be income ?

 

They are just paying for something they broke.

 

So Terry, assuming the tenant pays for it directly, is the landlord still entitled to claim depreciation on the new door? And, write-off the residual amount of the original door?

 

You would know better than me! But I think so.

 

A bit of a warm and fuzzy answer - if there's a depreciation schedule, the owner can possibly write off the remaining value as it was destroyed and depreciate what they paid for the replacement ie $0

If there was no previous depreciation schedule, then the new shutter would be included and no value ascribed to the old/damaged one.

This doesn't address the issue of income biz betterment.

 

i still think it was an assessable recoupment

INCOME TAX ASSESSMENT ACT 1997 - SECT 20.25 What is recoupment?

(1) Recoupment of a loss or outgoing includes:

(a) any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described; and

(b) a grant in respect of the loss or outgoing.

Amount paid for you

(2) If some other entity pays an amount for you in respect of a loss or outgoing that you incur, you are taken to receive the amount as recoupment of the loss or outgoing

 

Very interested in this. If you haven't paid for it, are you able to claim it though?
If the tenant wanted a clothesline (insert any item - pergola, flyscreens) and they paid for it, is the owner able to claim it?

 

Who owns it?

 

Thanks Terry, If they leave it behind the LL owns it I suspect. Yeah, I'm surprised if you haven't paid for something that it is claimable or part of a cost base for the owner.
So where does the line get drawn if you don't incur a cost? If I give somebody an iphoneX are they able to claim this as they own it? Genuinely don't know then answer, bu very interested in the outcomes.

 

It would depend on whose asset it is.

 

I assume that, in this example (garage door replacement following accidental damage by the lessee), that depreciation entitlements revert to the landlord from the date of replacement, thus, treated along the same lines as if the item was replaced under insurance. However, I don't like making assumptions.
The alternate view is that, having paid for the asset, the lessee is holder of the asset and that depreciation entitlements do not revert to the landlord until the end of the lease (and tenant vacates the premises and obviously leaves the garage door behind) ie treated similarly to lessee improvements in commercial premises.

 

agreed @RedlineQS so rather than complicate it just purchase it and have the tenant reimburse you.

its the same tax outcome without all the complications.

this discussion does highlight how a 10 minute phone call to your tax adviser could save you a world of pain later for something so simple.

 

The ATO have a nice hidden example of this here.

Rental properties and business premises

The proceeds received are assessable income and the owner needs to determine if the costs are deductible, depreciable or capital works. Care must be taken if improvements are made v's straight repairs.

It is probably good practice that the tenant not pay the cost of repairs directly but they pay the proceeds to the owner. You dont want a dispute at the end of the lease when they say - I'm taking my garage door.

I particularly have always found the last sentence interesting....Scrapping deductions apportioned based on only the present tax year ?

 

Can the tenant or tribunal force you to claim landlord insurance and tenant only pays the excess instead? If so how do recoup the costs of the higher premium for the next few years from tenant?

 

No one can force you to use insurance. They can force you to pay if they deem necessary, but will never tell you what method to pay with.

 

A tribunal may require (through refusing to grant a costs order) a landlord to determine their loss after making a claim if property is insured. Otherwise the suggestion is that a landlord can be indemnified for 100% of all property loss and profit from that event. (Subject to any $ limit imposed on the tribunal)

Arguably too a insurance claim may be invalid / excessive / fraudulent unless the landlord has incurred a loss or damage after allowing for monies received or receivable from a tenant.

Interesting article from 2014 VCAT etc... Tenants chased by double-dipping landlords

There also appears a common law view that insurance over a residential property provides cover for the owner and the occupants. ie If the occupant burns the property down they they are released from liability for loss. Interesting to see if this is held in any regard for minor claims etc.