Katrina Parrington

Mortgage & Finance Broker, Elders Home Loans – Northern Territory – P. 8932 8900

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  • Elders Home Loans

  • Katrina Parrington

    I am a long term Centralian resident with more than 18 years experience in the financial services industry. Initially, in Real Estate in Adelaide before pursuing a career with Elders Insurance Alice Springs and lending roles with major banking institutions where I gained extensive experience in Home Loans and Commercial Lending here in the Alice and in Darwin.

    I have a unique set of skills that ensures I understand your lending needs and can provide you with professional advice and personal service.

    Tel: 08 8953 8800
    email: katrina.parrington@eldershomeloans.com.au

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Posts Tagged ‘tax benefits’

Tax benefits of repairs and renos

Posted by Katrina Parrington on July 1, 2013

Claiming tax deductions on renovations to your investment property can save you big dollars but there are many tips and traps you need to be aware of, reports Julie Nance.

For first-time property investors, knowing the difference between deductions for capital works and depreciating assets is a good starting point.
The Australian Tax Office (ATO) allows you to claim capital works deductions for the construction costs of buildings, extensions, alterations (including kitchen and bathroom renovations) or structural improvements such as a gazebo, carport or retaining wall. The deductions are usually claimed at the rate of 2.5 per cent in the 40 years following construction, as materials such as bricks, concrete and windows are deemed to wear out slowly. Deductions can only be claimed if the property was built after 17 July 1985.
Depreciating assets, also known as plant and equipment, are parts of your investment property that are deemed by the ATO to deteriorate more quickly – such as an oven, dishwasher, dryer, air-conditioning unit, carpet or blinds. You can claim the deduction based upon the effective life of each item, regardless of the date the property was built. Each item will have its own effective life.
Tyron Hyde, CEO of quantity surveying firm Washington Brown, highlights in dollar terms the difference between the two types of deductions.
“If I purchased a house, then spent $100,000 to renovate the property, about $80,000 would be in the brick work, concrete, windows, doors, roof – the capital works,” Hyde says.
“You can claim that $80,000 at 2 ½ per cent yearly, for 40 years, which is $2,000 per annum. The balance of the renovation expenditure, $20,000, might fall into the category known as plant and equipment – ovens, dishwashers, blinds etc. Even though this is a lesser total amount, the first year deduction could add up to over $5,000 that might be able to be written off in the first year alone.”
Hyde provides the following advice to help first-time investors separate fact from fiction.
Fact: Timing is critical You can only claim deductions for the period during the year that the property is rented or is available for rent. If you bought a property and the tenant was there for six months, you renovated it and then moved in afterwards, you cannot claim the removal of those items. It has to be an investment property again once you have completed the renovations.
Fiction: You have to rent out a property for a six-month period to claim deductions. There’s nothing in the legislation regarding a minimum time frame. If a tenant was in place for one month after settlement and there’s a lease involved, you can then renovate and deductions would apply, as long as it is income producing or available to be rented out.
Fact: You can claim depreciation even before you start a renovation. This is true provided the property was built after 1985 and it has been leased out. Consult a quantity surveyor prior to the renovation who will assess the value of what is about to be removed and write this amount off. The amount can be quite substantial.
Fiction: You can’t claim depreciation on renovations carried out by a previous owner. You can still claim the depreciation as if you have done the renovations yourself, including on properties built before 1985. If I was to buy a property that had a 100-year-old structure but internally a new kitchen and bathroom were put in two years ago, the 40-year life expectancy starts from the completion of those renovations. If you don’t know the timing of the renovations, a quantity surveyor can estimate that for you.
Fact: There is a big difference between renovations and repairs and maintenance. You can claim a deduction for the costs you pay to repair and maintain your rental property, in the year you pay them. Some people find it difficult to work out the difference between repairs and capital works.
Examples: REPAIR: A plumber fixes a valve on a hot water system. CAPITAL WORKS: The plumber replaces the whole hot water system.
REPAIR: You fix five missing or broken palings on a timber fence. CAPITAL WORKS: You replace the whole fence.
Fiction: You can claim the amount of initial repairs. If you make repairs straight after settlement, they are deemed capital works because the deterioration occurred to the property before it was yours.

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