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  1. #1

    Default Capital cost or revenue related costs???

    Hi. I intend on purchasing a run down property under my LAQC. The owners started some work but its mainly unfinished. The property has no carpet (only underlay in some places and bare wooden floors in others). Lots of light fittings missing (just wires hanging) and re-gibbed and plastered which needs sanding and painting.
    My question is when I do the reno after purchase and the cost is say 15K all up, will this be capital expenses or expenses that I can claim in my tax returns?

  2. #2
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,594

    Default

    capital.

    It's really a cost of buying the property.

    So your real cost is X + $15k
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    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  3. #3
    Join Date
    Jun 2004
    Posts
    10,367

    Default

    Given that it doesn't exist it can't be a repair so must be capital.

  4. #4
    Join Date
    Apr 2008
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    2,086

    Default

    Looks like capital, to me. It's a one-off payment to improve the dwelling. Not like rates, interest, etc.

    So your abilty to claim a deduction lies in depreciation, rather than expenses.

  5. #5
    Join Date
    Sep 2004
    Location
    Hastings
    Posts
    14,846

    Default

    Does it need to be one or the other? E.g. if the
    old light fittings are around, you could be fairly
    said to be 'repairing' them, perhaps?

    In your case, I'd push the envelope as far as
    you think you can get away with. Remember
    that a tax deduction principle is that no expense
    shall be capitalised & depreciated AND claimed
    as a revenue expense.

    The net result is the same. In one situation the
    clawback of the expense is immediate; in the
    other - it's long term.

    Your present income levels and tax deduction
    options are also something to consider in the
    risk/benefit analysis.
    Last edited by Perry; 02-06-2009 at 10:39 PM. Reason: fixed typo
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  6. #6
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,594

    Default

    No definitly capital.

    This case is slightly different from the normal repair vs asset argument. The main difference is that Bongi is buying a run down property at discount, the costs incurred in getting the property back up to standard are really a cost of buying it.

    If Bongi did the renovations straight away it is capital. If Bongi delayed doing the renovations until say 1 year later, than the renovation is no longer a cost of buying, then you could split between capital and repairs depending on items and timing.


    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.


 

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