Join Australia's most dynamic and respected property investment community

Would travel cost be deductible after contract signing but before settlement?

Discussion in 'Accounting & Tax' started by doubletoplei, 10th Jun, 2016.

  1. doubletoplei

    doubletoplei Well-Known Member

    Joined:
    17th Apr, 2016
    Posts:
    55
    Location:
    Geelong
    Just signed a contract on a house interstate with 60 days settlement and 14 days building/pest inspections. Wondering if I fly there, inspect the house with the inspector and talk to the agent face to face on a few further details, would the travel cost be deductible please?

    According to ATO website: "If you fly to inspect your rental property, stay overnight, and return home on the following day, all of the airfare and accommodation would generally be allowed as a deduction because the only purpose of your trip was to inspect your rental property."

    Not sure if this house is now my property . Many thanks for the help.
     
  2. Player

    Player Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    348
    Location:
    Paradiso
    Sounds like a capital cost. You don't own it yet and if it's subject to building and pest it isn't even an unconditional contract. Keep records and receipts if adding back to cost base for the future.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,033
    Location:
    Sydney
    Whats the purpose of the trip. Sounds like a capital expense to me because there is no rent.
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
  5. doubletoplei

    doubletoplei Well-Known Member

    Joined:
    17th Apr, 2016
    Posts:
    55
    Location:
    Geelong
    Hi Terry,
    The trip is to inspect the property with B&P inspector and meet with the selling agent for a few details. It will be a single day trip so the whole purpose of the trip would be for the IP.
    Also, what exactly does capital cost mean in this case? Does it mean that if I sell the property in the future, this cost will be added to the purchase price so that I pay less CGT? Many thanks for your help.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,033
    Location:
    Sydney
    Yeah probably not deductible. A capital cost is one related to acquiring an asset you intend to hold on to.
     
  7. markson

    markson Well-Known Member

    Joined:
    14th Feb, 2016
    Posts:
    310
    Location:
    NSW
    On this note what about the initial trip? Fly to QLD inspect 7 properties. Sign a contract on one. Is this able to be included as a capital cost? Or only after the contract is signed?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,033
    Location:
    Sydney
    Nope
     
    markson likes this.
  9. Taku Ekanayake

    Taku Ekanayake Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    765
    Location:
    Sydney, Australia
    if you already own an investment property in that state you could say it is to visit the one you already own.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,033
    Location:
    Sydney
    You couldn't just say that, but would have to actually visit that property to actually be able to legitimately claim the expenses, and have evidence ready in case of an audit. if it turns out that the purpose of your trip related to 2 or more reasons you might then have to apportion.
     
    sanj and York like this.
  11. markson

    markson Well-Known Member

    Joined:
    14th Feb, 2016
    Posts:
    310
    Location:
    NSW
    What about after settlement but before the property is available for rent? Fly up and install some new blinds, fix a door and then fly back? Can these travel expenses (flights, car hire, etc) be added as a capital cost?
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,033
    Location:
    Sydney
    I don't think so as it doesn't relate to any of the 5 elements of s110-25 ITAA97.
     
  13. Greyghost

    Greyghost Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,262
    Location:
    Melbourne
    As the purpose is to inspect the purchase, not say to inspect to see how agent is managing tenants, then it would be a capitalised expense.
     
    doubletoplei likes this.
  14. doubletoplei

    doubletoplei Well-Known Member

    Joined:
    17th Apr, 2016
    Posts:
    55
    Location:
    Geelong
    Thanks Greyghost, could you please elaborate more on capital cost and capitalised expense? What are the differences from the tax perspective?
     
  15. Greyghost

    Greyghost Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,262
    Location:
    Melbourne
    It would be added to one of the elements of the cost base.
    In simplest terms. Purchase price + stamps + travel costs = basic cost base
     
    doubletoplei likes this.