PROPERTY A quality investment property can be compared to a sitting position on very rainy ground. And, just like the climate, the performance of the rental market and the opportunity to make a profit are also subject to uncertainty. Fortunately, what you do when you manage your investment can allow you to make more money at the end of the day, whether the market demand is raining or not.
Now that the home improvement culture has swept the salons across the country, the fear of getting involved in a horror of the eyes has become a hobby. More than ever, the idea of â€‹â€‹buying and renovating, demolishing and building, stripping and painting is the order of the day. Investors are increasingly approaching upgrades in the form of hands-on projects, building on investor confidence and cost-based vigor as their primary focus.
But no matter your renovation budget, some questions remain. What repair costs can you get back via a well-prepared refund request? And what costs can be allocated to the renovation and therefore added to your cost base – only showing their benefits when you sell the property?
The Rule of Wear
The Australian Taxation Office states that a tenant is entitled to claim the costs of any type of work performed on an investment property, provided that the expense ultimately contributes to its maintenance and to its global repair.
With the term "repair", the ATO refers to the corrections made to repair the damage, defects or signs of wear that affected the property during its tenancy to the tenants.
"Repairing something means repairing defects, including the renewal of parts. This does not include total reconstruction, "confirms the ATO.
In other words, if the replacement of a broken shower head or the resealing of a leaking bath are both considered to be taxable at the time of the tax, transform a bathroom working perfectly in art deco and moroccan business probably would not be the object of the tax seal of approval of the office.
At the other end of the spectrum, we find the costs associated with the maintenance of the rental property, which are also tax deductible. But what kind of work does this cover?
In the end, alimony claims may include any type of work done on the property and preventing it (or part of it) from deteriorating or possibly being broken or unusable.
The ATO recognizes that things such as painting, greasing, brushing, cleaning and maintenance of electrical equipment and plumbing are reportable. For example, you can deduct purchased equipment or tools to eliminate rust, mold or rooting dirt, as well as using an electrician or plumber to repair a faulty cable or hose. Other examples include replacing a broken window, cleaning a blocked blower and recruiting a professional to make an impeccable stained carpet again.
It is important to note that all maintenance and repairs to the property must be claimed in the year in which they are made and any deterioration or wear must have occurred on the property during the period rent. It is advisable to be well prepared and organized, including archiving and creating electronic copies of each receipt and invoice to support each claim.
Improvement or repair?
And if you plan to combine art deco and renovation of Moroccan bathrooms?
There is no doubt that the redevelopment of a space is a sure way to attract rental rent and increase its value to potential renters. This can be particularly rewarding if you decide to one day put the house on the market.
But as this type of work is recognized by the ATO as an "improvement", renovations of this nature and magnitude can not be immediately claimed in your annual tax filing.
According to the ATO, an improvement is classified as a work that "brings something new, generally improves the ability to generate income or the expected life of the property, generally changes the character of the property." element that you have improved and goes beyond the restoration. " the effective functioning of the good. "
So there is a boundary between what can be claimed immediately and what can not be, in terms of the work you do for an investment or lease. On some occasions, the line is thinner, especially when a landlord approaches a job with the best intention of doing maintenance work or performing a simple repair, but that work at to accomplish erroneously wanders beyond that.
So, how can you predict if you are about to cross this line?
Understanding what separates a repair or maintenance job from an improvement requires asking the right questions before you begin
Intention, Design and Materials
To understand what separates a repair or maintenance job from an improvement, you need to ask yourself the right questions before you start. Am I correcting or improving this? How will what will be done change what already existed?
These are just initial questions. It is also crucial to be able to step back from the situation and evaluate how you will do the work and what materials you will use. Although you may want to perform maintenance work with the assurance that you can claim it on your tax return, you do not want to give a character, feature, or new-angle lens.
Filling the cracks in a wall and giving it a new coat of paint is very different from the first rendering of the wall. Breaking down the wall to create an open layout plan will also substantially alter the appearance or character of a property, rather than just addressing the flaws that it might have, so the Costs of such work will generally not be accepted as a tax claim by the government. ATO.
In general, when you approach a repair or any maintenance work, you want to check the structure of the damaged or damaged structure and use similar or even identical materials.
Builders, painters, electricians and other professionals can provide a detailed invoice on request, which breaks down every part of the work performed, allowing you to separate the cost of improvements from the cost of repair and maintenance work.
All is not lost
Suppose you've gone all the way and just cleared the last dust of your upscale bathroom remodel. But you are a little deflated, knowing that you can not receive an immediate tax deduction on the impressive upgrade you've funded.
Fortunately, there is still a possibility of making the cost of an improvement profitable, although you can not do it at first with a tax return, but rather by claiming a deduction for capital works.
The ATO specifies what capital expenditures may be claimed, including "construction costs, the cost of altering a building and the cost of improvements to the surrounding property."
If you have turned a dead end into a sparkling new lease immediately after the settlement of the purchase; tore off all eroded kitchen cabinets to make room for new ones; If you have completely replaced a fence or added an extension to a property, you can claim a capital works deduction, but you must claim it for several years. You can only do this if the work meets certain conditions.
Structural improvements are also deductible in this manner, as well as the costs associated with hiring an architect, engineer or surveyor, as well as any costs related to building permits and excavations.
However, in order for you to qualify for equipment deductions, the property must have been built after July 17, 1985. What you recover in your pocket will depend on the nature of the construction work and the nature of the work. the date you started them.
While it is advantageous to conduct an independent research on the costs that can be claimed for work done on investment properties, it is also advisable to consult a qualified accountant or tax agent to obtain his opinion on your situation. special. Given the range of work that can be done on a property, different scenarios from investor to investor and the need to comply with tax law and certain conditions, a professional is best placed to ensure accuracy and the accuracy of your request.