Investment properties - claiming for work done

[niknjas]

Hi

 

Knew there would be someone on here that could help, so hoping to pick your brains please.

 

In a rental at the moment and have an opportunity to buy a property as an investment at a good price. Tenant in there for the last two years and is happy to stay on. Problem is, the house is so cheap as it needs a fair amount of work to do on it. I hear you say why buy a wreck. Reason is that it is in a good area with a sea view and once we have renovated / added on it will be worth a fair bit.

 

Getting to the point now - we have been led to believe that whilst the tenant is in the property, that any money spent on the property as maintenance can be claimed back?!

 

Can anyone tell me if this is when the work is carried out or at end of Financial Year, how long it takes to get it back and what sort of thing you can actually claim and how the shortfall on rent works please.

 

Is there also a company you can claim it back through direct (our landlord seems to think there is but he has never claimed anything).

 

Thanks in advance

Jason & Niki

[Diane]

It is well worth getting a good accountant - there are loads of things you can claim, and rather than trying to work it out yourself, go to an accountant (whose fees I think are claimable against tax too, if you do it the right way!)

[Guest Reenz]

It's best to be careful with the definition of "maintenance", vs "improvement". Maintenance can be claimed back through the tax system at the end of the financial year, but any improvements of a capital nature (ie that increase the overall value) must be depreciated (or as the ATO refers to it: "declined in value") over a number of years, or in some cases added to the cost base of the property.

 

Here's a starting point for research: http://www.ato.gov.au/individuals/content.aspx?doc=/content/00183233.htm

 

I've never heard of companies that can claim on your behalf. But there are companies that will draw up a depreciation schedule for you for a few hundred dollars when you buy a property. The schedule just states how much you can claim for maintenance items per year. What they won't tell you is that the Tax Office still allows investors to draw up their own depreciation schedule, so you can save yourself the expense. It's not that hard to do. You would need to call up the Tax Office to ask them what they consider a fair depreciation rate to use for each item, eg stove, carpets, curtains, aircon, HWS, alarm system etc. (And even if you did pay someone to draw up a schedule for you, that's only part of what you can claim - there will be other expenses to consider: rates, water, agent's fees, insurance etc, which you'll have to tot up yourself at the end of the financial year).

 

One other thing to consider is the capital gains tax you may be liable for when you sell it. If you've added a fair bit of value through your own hard work, the Tax Office will take a slice of your profit when you sell.

 

Anyway, hope this helps!

[niknjas]

Hi Diane - we have an accountant as my hubby is self-employed but have not seemed to get a clear cut answer so may have to change accountants. Maybe I asking too many questions as I like to be exact and things here seema bit woolly.

 

Hi Reenz - Thanks for that. Had a look at that website. Unfortunately still slightly confused as seems if you replace like for like you can claim but this is a 1960's brick built property. Needs new heating system, probably new electrics, new bathroom and new kitchen, walls knocking down and we want to extend. Making me wonder if it will be all worth it as the little I can glean we would not be able to claim much. We had been lead to believe you could claim all maintenance.

 

Thanks for feedback both of you

[Toni]

Be careful if there is a tenant in the property as they are allowed to have "quiet enjoyment" of their home. If you plan on replacing the kitchen and bathroom etc then the tenant is likely to complain to the OCBA. If there is a lot of work to be done on the property then you may need to get the tenant to vacate by serving a notice. Look at this website or call them and ask http://www.ocba.sa.gov.au/tenancies/

[niknjas]

Thanks, forgot to mention there is damp and no aircon. Will have a look

Cheers

[Tamara (Homes Down Under)]

Hi,

There is some very good advice here.

 

When you spend money on your improvements / repairs your tax consultant will ask you some questions and your answers determine what you can claim! If the house doesn't have an aircon and you spend $8000 to fit one you can't claim this...but if you replace a faulty aircon you can claim!

 

Let's say that you make a $15,000 loss on your rental property in the financial year but let's say you paid $15,000 in tax from your earnings for your salary.....you will get all this back! Is the property in a single name or is it jointly owned? If it is jointly owned and you paid $15,000 in tax but your OH wasn't working then you would only be able to claim $7500 back. A good tax consultant is the key. The tax laws in Australia for rental properties (negative gearing) are great....that's why there are so many investement properties.

 

Tamara

[niknjas]

Hi,

There is some very good advice here.

 

When you spend money on your improvements / repairs your tax consultant will ask you some questions and your answers determine what you can claim! If the house doesn't have an aircon and you spend $8000 to fit one you can't claim this...but if you replace a faulty aircon you can claim!

 

Let's say that you make a $15,000 loss on your rental property in the financial year but let's say you paid $15,000 in tax from your earnings for your salary.....you will get all this back! Is the property in a single name or is it jointly owned? If it is jointly owned and you paid $15,000 in tax but your OH wasn't working then you would only be able to claim $7500 back. A good tax consultant is the key. The tax laws in Australia for rental properties (negative gearing) are great....that's why there are so many investement properties.

 

Tamara

 

Thanks Tamara. Slightly confused about the bit about one of you working and only getting half back though. We are going to go and have another look at the house and make a complete list of what needs replacing / putting in and then go to accountant. At least we can make a decision from there.

[Tamara (Homes Down Under)]

Hi,

Sorry for the confusion.

 

If the investment property loses $15,000 in a tax year and you have a job that results in you paying $15,000 tax in the same tax year...you get all the tax back. However, if the same property is jointly owned with your spouse and they don't work and pay any tax...you will only get $7500 back. If they work and pay at least $7500 tax they will get half the losses back ($7500) as well.

 

My OH was still overseas when I bought the first house and it's just in my name....he works and presently I don't but any losses cannot be claimed from the tax that he pays at work.

 

Tamara

[niknjas]

Hi,

Sorry for the confusion.

 

If the investment property loses $15,000 in a tax year and you have a job that results in you paying $15,000 tax in the same tax year...you get all the tax back. However, if the same property is jointly owned with your spouse and they don't work and pay any tax...you will only get $7500 back. If they work and pay at least $7500 tax they will get half the losses back ($7500) as well.

 

My OH was still overseas when I bought the first house and it's just in my name....he works and presently I don't but any losses cannot be claimed from the tax that he pays at work.

 

Tamara

.

Hi

Thanks Tamara. Got it now. I presently don't work as my youngest is still at kindy, so we could only claim all for example if it was in his name then. Thanks again

Niki

[Tamara (Homes Down Under)]

You may still be fine depending upon how large your investment losses were and how much tax he pays! They may balance themselves out.

 

tamara

[niknjas]

Thanks Tamara. It just seems like a minefield when you haven't got a clue.

[csobrien1966]

All of our landlords use this company who deal with nothing else but investment properties

 

BMT http://www.bmtqs.com.au

 

hope it helps

[niknjas]

All of our landlords use this company who deal with nothing else but investment properties

 

BMT www.bmtqs.com.au

 

hope it helps

 

Thank you, will check it out

[Diane]

Ask your accountant about the pros and cons of setting up a family trust to take full advantage of tax concessions/reductions

[Andrew from Vista Financial]

Here is an example of negative gearing just to clarify things.

 

Also see this calculator as a useful tool http://calculators.ato.gov.au/scripts/axos/AXOS.asp

 

 

Let's say that someone has made a loss/has deductions of $10,000 per annum after taking into consideration rental income less allowable expenses/costs.

 

In this example the total annual income = $60,000

 

Less allowable deductions = $10,000

 

Tax payable = $8,600 (this takes into account medicare and low income tax offset)

 

Net Income = $51,400

 

 

Compare this to someone without a tax deduction.

 

 

Income = $60,000

 

Tax payable = $12,150

 

Net income = $47,850

 

 

Therefore tax benefits of $3,550 actual loss $6,450 ($10,000 - $3,550).

 

So essentially negative gearing means that you are still making a loss but that loss is lessened by the same rate as your marginal tax rate.

 

Usually this tax rebate is given at the end of the financial year once a tax return has been lodged however it may be possible to do a variation so that you pay less tax along the way.

 

As mentioned a good Accountant will be able to clarify all of this for you.

 

You should also discuss your exit strategy i.e how long you are looking to hold it for etc as it (like Diane pointed out) may be beneficial to look at trusts etc

 

 

Hope this helps.

 

Andy