We tend to be asked, what items can you claim a complete deduction for, and what items are ‘depreciated’. Basically an ‘Expense’ is something that you may be entitled to an immediate deduction in the income year you incur the trouble. A ‘Capital Works Deduction’ is an expense of the capital nature that are depreciated over time and or may form area of the cost foot of the property for capital benefits taxes purposes.
What is an EXPENSE? Maintenance and Maintenance is the most asked item commonly. Expenses for fixes you make to the house might be deductible. However, the repairs must relate right to deterioration or other damage that occurred as a result of your renting out the house. Fixes generally involve a renewal or replacing of a worn out or broken part, for example, replacing some guttering broken in a surprise or part of a fence that was damaged by a falling tree branch. So, that means that maintenance carried out to a purchased property aren’t expenses newly, and are considered Capital Works.
Refer to the examples below on fixes prior to hiring a property and when it is no longer being rented…. “The Hitchmans had a need to do some fixes with their acquired rental property prior to the first tenants transferred in recently. They paid an inside decorator to repaint dirty walls, replace broken light fittings and repair doors on two bedrooms. They uncovered white ants in some of the floorboards also. This required white ant substitute and treatment of some of the boards. These expenses were incurred to help make the property suitable for rental and didn’t arise from the Hitchmans’ use of the property to generate assessable rental income.
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“After the last tenants transferred out in September 2013, the Hitchmans uncovered that the range didn’t work, kitchen tiles were damaged and the toilet window was broken. They also found out a gap in a bedroom wall structure that were covered with a poster. In October 2013 the Hitchmans paid for this damage to be repaired so they could sell the house. As the tenants were longer in the property no, the Hitchmans were not using the house to produce assessable income.
To get more information on Capital works deductions as well as how to declare, read on….. What is a CAPITAL WORKS DEDUCTION? How are these deductions calculated? Well that’s where it gets complicated and where the benefits of using a professionally prepared ‘Tax Depreciation Schedule’ made by a amount surveyor such as BMT are priceless.
I know of a number of good examples where our landlords actually were able to claim thousands of dollars worth of extra deductions after they had their statement done – I highly recommend it. To work through your deduction there are two methods. Both methods derive from the effective life of the asset (which is determined by ATO ruling TR2014/4.
The ‘Diminishing Value’ method is most commonly used and assumes that the decline in value each year is a constant proportion of the rest of the value and produces a steadily smaller decline over time (allowing higher deductions immediately). On the 1st July you install a split system air conditioning (so unit is held for 365 times). 2000.00 The ATO effective life is a decade.
A common way to get income in pension is through the use of an annuity, which is a fixed amount of regular cash flows typically distributed for the others of the annuitant’s life. You can find two types of annuities: immediate and deferred. Immediate annuities are in advance payments paid that release obligations from the main starting as soon as the next month.