Expenses (Again)

[Monid]

Just a quick query

we are about to rent out the house we have been living in for the last 4 years...
The house is in need of a paint outside and we are thinking of getting this done whilst it is tenanted, saves us the hassle of being around during the process...

We were wondering whether this could be claimed as a repair or not. I'm guessing not but I am interested in the answer to a more general question, namely if you turn your home into a rental does the IRD view a repair as something restoring the property to the same condition as when you bought it? Or as when you turned it into a rental?

Cheers David

[Scooby]

Expenses (Again)

Hi Monid

You will have to first relinquish the house into a LAQC or trust, before you can start to claim any expenses, whether they are maintenance or capital cost related. Don't waste your potential tax recovery $$$ until this is done, otherwise the IRD will see it as a private dwelling rather than a property that was purchased for the purpose of an investment.

Not sure if this helps, but I wanted to get my first post out of the way

Cheers
Scooby "Newbie" Doo

[fudosan]

Re: Expenses (Again)

Not sure if this helps, but I wanted to get my first post out of the way

Welcome to the forum, Scooby. It's good to see members eager to help. At least you are not a "newbie" when it comes to using Emoticons. I still have not figured out how to embed them after posting more than 200 messages.

[Julian]

Once relinquished (as above) get a valuation and chattel valuation carried out. This will determine current land value (cannot be depreciated) and other values which are depreciable at different rates.
With regard to the painting it is obviously a capital cost, and thus not claimable as a repair, but rather is capitalised and depreciated.
It sounds like it could be worth your while seeking the services of a good accountant. A good book to pick up is Mark Withers "Property Tax - A New Zealand Investor's Guide" It is available through this web-site or at most good book stores.

[artemis]

With regard to Scooby's post above, it used to be the case that the IRD looked at the original reason for purchase when deciding whether rental expenses could be claimed. This is why some transfers to LAQCs etc were made.

I have read in the NZ property mags several times in the last year or so that this is no longer IRD policy so a transfer is not required, not for that reason anyway.

[murray-spi-investments]

wooh hold up there folks . the property does not have to be in a laqc it can stay in personal ownership if you wish. accounting is the same just nominate the date you have made the property avaliable for rent.

Smart thinking monid to do the painting after you rent it. you will have to capitalise the paint job. I assume it will cost several thousand $ and depreciate it over time.

I usually use the council Cv and pro rata that over the purchase price to do the land building split. I suggest You try Valueit if you want a chattels valuation.

[masteraccountants]

Hi Murray,

I agree with you that there is no imperative to change the ownership structure to in some way improve the taxation deductions or tax situation of the property investment. In fact it can be a waste of time as far as chattels valuations and depreciation claims. An LAQC could improve the tax benefits between the owners, but not increase the tax claims.

I am not so sure about having to capitalize the paint job. Presumably the house walls already have paint on them. As long as the paint job is a repair and not an improvement in value, it can qualify as a repair and be claimed 100%.

If the paint job were organized for the day after the owners vacate the property, that would make it difficult to claim it as a repair. Let's say that the owners leave the work to be completed say six months after the rental tenants move in, I might take the view that the "repairs were occasioned by the rental tenants".

Perhaps the owners should check with their tax accountant to see how they feel about the timing issue and whether the paint job could be classified as a repair, rather than as a capital cost to be depreciated. Let the person charged with making the claim give them the definite answer. We just provide the options.

[murray-spi-investments]

I am presuming the paint job is the whole house and not just bits and pieces which would be expenced

[masteraccountants]

Hi Warren,

Even where it is the whole house being painted, the total job might be in the region of $3 000 to $5 000. So it is not a large amount, like replacing a roof for $10 000+.

As long as some time passes between the rental tenants moving in and the paint job being carried out, it can be said that the damage was occasioned by the tenants and it is then a repair of that damage.

It's a grey area. Too close to the tenants moving in, and it is pushing the envelope a bit. The longer after the tenants move in, and it is more likely to be accepted.

In practice, both IRD and the ATO accept expense claims where there is income in the first year and last year income tax returns for a rental property.

[Evil]

Re: Expenses (Again)

At least you are not a "newbie" when it comes to using Emoticons. I still have not figured out how to embed them after posting more than 200 messages.

Hi Fudosan,
You just click the Emoticons that are located at left of the message window...or alternatively just type them in and they get converted to the appropriate emoticon
eg. : ) (with no spaces) =
or : twisted : (with no spaces) = :twisted:

Glen

[oc]

Painting is repairs & and maintenance as far as I am concerned - if you didn't do it (the painting) the house would eventually fall down. Paint is an integral part of the building not like carpets drapes etc (fittings & fixtures). Therefore allways R&M.

OC

[masteraccountants]

Hi OC,

Okay, I can see where you're coming from.

First time painting, like in a new house, is capital. Thereafter it is repairs.

It is just with rental properties that IRD have special rules. If you are preparing a property for rental, the expenses are all capital. The income producing activity has not yet commenced. As long as the property is tenanted, however, the painting is repairs.

If you have had a property tenanted, and you paint it while it is between tenants, again it is repairs. Just as long as the owner has not taken up residence in the house and triggered the 'change of use' rules. That is change of use from rental property to private family residence.

If it was all too easy, accountants wouldn't have a job!

[oc]

Good reply Christopher I can now see where the confusion arises from.

regards
OC